Beyond the (c)(3): Donors Change Tactics, Driving a New Era of Politicized Giving
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The 501(c)(3) has enjoyed emblematic status in civil society for decades. Be it a public charity or a private foundation, the c3 has become almost synonymous with the word “nonprofit.” But while it’s far too early to declare an end to c3 predominance, the landscape is shifting. Today’s era of intense political conflict has given rise to a class of donors whose giving is much less beholden to the c3 tax exemption, and who care little for carefully nurtured nonpartisan reputations.
Wherever their sentiments lie, a growing number of funders believe that taking the high ground and ignoring policy and electoral fights is a losing strategy. Nonprofits have followed suit, especially on the left, where, in recent years, a long of list of progressive 501(c)(3) organizations has created 501(c)(4) arms to broaden the levers of influence they can pull and engage more politicized donors. Contributions to c4s are not tax-exempt.
In part, these efforts are a response to the successes of a conservative funding movement that has been fighting on all fronts for decades. During the 20th century’s waning years, right-wing donors built up an intellectual and policy infrastructure that worked closely with Republican leaders to diminish labor, defang corporate regulation, remake the judiciary, and dismantle the policy legacies of the New Deal and Great Society. This movement relied heavily on both c3 and c4 funding to shift narratives within the Beltway and around the dinner table.
While left-leaning nonprofits like the ACLU have also long maintained c4 arms, c4 strategies are becoming far more common among groups that once sought to portray themselves as nonpartisan. In a parallel development, a growing number of funding intermediaries has emerged on the left, channeling both c3 and c4 giving. Additionally, some prominent newcomers to philanthropy in recent years—like Mark Zuckerberg and Priscilla Chan—have created LLCs designed to manage both c3 and c4 giving.
Add it all up, and the line between philanthropic and political giving is increasingly blurring across a changing nonprofit landscape.
Polarization Drives New Strategies
Moving political money through nonprofit institutions isn’t a new phenomenon. The 2004 election brought notoriety to 527 organizations, which channeled tens of millions of dollars to electorally focused groups on both sides of the partisan divide, including Americans Coming Together, MoveOn.org, and Swift Vets and POWs for Truth. Since the Citizens United ruling in 2010, laxer rules around political giving have galvanized more advocates to seek c4 designation. That trend has accelerated in the polarized post-2016 era, which has seen a swift proliferation of new 501(c)(4) groups opposing the Trump agenda, as well as new c4 arms of nonprofits.
“Groups are starting to recognize that for the issues and communities they care about, there needs to be a change in who sits in office,” said Abby Levine, director of Bolder Advocacy. Levine leads a team based at the Alliance for Justice that familiarizes nonprofits with ways to support their causes in and around the halls of power. “In the wake of 2016, a lot of people who weren’t involved in advocacy before—including people who weren’t familiar with c3s—started asking: This is what we want to do, what’s the best structure?” she said.
For some post-2016 advocacy groups, c4 made more sense than c3 from the get-go. Many of these c4 newcomers have positioned themselves behind a progressive grassroots bent on wresting control of Congress and statehouses from the Republican grip. They include places like Onward Together, Stand Up America, Indivisible Project, Swing Left, Sister District and the Movement Cooperative. Their funding bases are often composed of many small donors, or well-off liberals who can give generously, but not at a level considered “philanthropic.”
Although a surprising amount of advocacy work is possible under the c3 rubric, the c4 designation really expands the realm of possibilities for nonprofits. The Center for Popular Democracy (CPD), a progressive c3 advocacy organization, shares its overall mission with CPD Action, an affiliated c4 with separate governance. According to Sheena Brown, director of Partner Resource Development at CPD and CPD Action, achieving those goals “requires many different tactics and tools, including public education, research, communications and advocacy efforts around key issue areas, including, for example, protecting the right to vote for people of color and all citizens, and lobbying efforts.”
Brown says that donors support both organizations “in ways that make sense to them.” Some take advantage of the tax exemption by donating to the c3, while “for others, that’s less important, and they care about policy outcomes with CPDA.” Brown continued, “In this moment, we find many donors are giving to both CPD and CPDA, and that there is an enhanced interest in c4 giving generally, and we are grateful.”
In addition to the progressive advocacy groups that have sprung up in the Trump era, older liberal nonprofits have taken advantage of new streams of funding to flex their advocacy muscles. Last year, for instance, the Southern Poverty Law Center created a c4 arm, the SPLC Action Fund. And just as Trump came to power, the NAACP transitioned its entire organization from c3 to c4.
The Heavy-Hitters Step Up
The past several years have also seen some of the largest funders out there step into the c4 arena. The latest entrants into all-out advocacy are Bill and Melinda Gates, who are creating a 501(c)(4) lobbying shop, the Gates Policy Initiative. The Gateses are joining fellow big-name funders whose forays beyond c3 philanthropy are all quite recent.
The Chan-Zuckerberg Initiative, created by Mark Zuckerberg and Priscilla Chan, is only a few years old, but now has a well-developed track record of c4 giving to sway both national policy on criminal justice and immigration, and to influence local battles in the Bay Area over issues like transportation and housing. Laura and John Arnold recently ditched their foundation to create a broader entity called Arnold Ventures in order to better integrate their growing c4 giving with their grantmaking across a range of issues. The Open Philanthropy Project—bankrolled chiefly by Dustin Moskovitz and Cari Tuna—has identified c4 funding as a promising effective altruist approach. Sean Parker is another tech donor who has engaged in extensive c4 giving, after declaring, in a 2015 Wall Street Journal op-ed, “Political interventions might seem dirty, with the potential to sully your reputation, but many of our big problems have a political dimension.”
Few mega-donors agree more with Parker than Michael Bloomberg and Tom Steyer, both of whom have poured tens of millions of dollars into c4s in recent years to move the needle on climate change, guns and other issues.
The biggest givers haven’t been keen to politicize their non-c3 funding, cognizant of the continued benefits of a nonpartisan brand. That’s especially true of those, like Zuckerberg, whose primary roles are as business leaders rather than philanthropists. The Gates Policy Initiative stresses that it will stay apolitical. As Rob Nabors—the former White House deputy chief of staff who’ll lead the Gates effort—told The Hill, “In terms of political giving or statements in support of political candidates, Bill and Melinda have been very clear that we will not be doing that type of activity through the (c)(4). We are focused almost exclusively on legislative outcomes and the lobbying effort.”
While it’s understandable that funders like Bill and Melinda Gates want to keep their distance from political mudslinging, the simple fact that more of America’s top philanthropists are moving beyond c3 vehicles underscores what are often false distinctions between tax-exempt and non-tax-exempt giving. In many cases, both streams of money are chasing the same policy outcomes. Plenty of donors have long understood that philanthropic giving can be just another form of political giving, with nice tax advantages. What’s different today is that the wealthy are getting more savvy about deploying their wealth through multiple kinds of entities in an integrated fashion—and there is a growing infrastructure to help them do that.
For example, donors who want to use both tax-exempt philanthropic gifts and non-tax-exempt political gifts to influence environmental policy can choose from a much wider array of c4 entities connected to leading green groups than existed in the past, when the League of Conservation Voters was one of the few vehicles for political giving in this space. NRDC didn’t create its c4 arm until 1999, nearly 30 years after the organization was founded. EDF created its c4 in 2002.
One result of the rise of more hybrid nonprofits with both c3 and c4 arms is that philanthropists can now more easily stick with the nonprofits they like and trust when they engage in political giving, as opposed to turning to different organizations.
“Where Key Change Takes Place”
Most of the money to sway major issues still moves through c3 channels and that’s unlikely to change anytime soon thanks to the vast, restricted assets locked up in private foundations and donor-advised funds.
But Columbia Law School’s David Pozen hinted at a long-term shift last year in The Atlantic, discussing c4 fundraising in light of reduced incentives to itemize deductions under the Republican tax overhaul. He wrote, “the shift toward 501(c)(4)s, PACs, and hybrid legal structures represents more than just a temporary adaptation to Trumpism. It signals the possible emergence of a distinct brand of legal liberalism for the 21st century—one less oriented around lawsuits and tax-subsidized donations and more closely connected to partisan politics and grassroots organizing.”
Evidence to support Pozen’s point seems to come in daily. At Inside Philanthropy, we increasingly find our reporting straying into c4 territory as we follow flows of money spent to achieve social and political change. At the same time, we’ve also reported on how more private foundations have been engaging in harder-hitting electoral and movement-building funding within the rules that govern c3 grantmakers.
Gara LaMarche, who leads the Democracy Alliance and previously served as president of Atlantic Philanthropies, sees this as largely a positive development. “That’s where key change in our society takes place, and why, for example, Atlantic’s $26 million commitment to healthcare organizing when I was president relied heavily on grassroots movements.” Despite their avowed apolitical stances, funders looking to get things done may have little choice but to engage in controversial fights during the years ahead.
For decades, the Alliance for Justice and other proponents of bolder advocacy have argued that private foundations have far more latitude than they realize to engage in funding that can influence politics and policy. One example of foundations taking heed to this advice is the creation a few years ago of Healthier Colorado, a c4 spun off of by the Colorado Health Foundation whose campaigns include a push to defend the Affordable Care Act.
In a white paper, Healthier Colorado discusses how private foundations can employ perfectly legal means (critics might call them loopholes) to resource c4s, including restricted grants for non-lobbying activities. The implications are rather important, especially in areas like healthcare where powerful industry groups dominate national and state lobbying arenas that foundations mostly perceive as off-limits.
And the Winners Are…
Across many issue areas, advocates would be in a better position to challenge entrenched power if they had more resources to deploy for electoral work and lobbying. As we’ve reported, a growing number of progressive funding intermediaries understand that reality and are on the case—including the New Left Accelerator, the Movement Voter Project, and Propel Capital.
Meanwhile, conservative funders are also resourcing such work, moving large amounts of cash to c4 outfits engaged in a range of battles—over judicial nominations, for instance. This giving is a reminder that it’s hard for anyone to win today’s ideological arms race with more spending.
In the end, the most obvious winners from the ever greater, more diversified flow of money into politics and policy are America’s far upper class—the people who are writing the checks and calling the shots.
