Accountability and Oversight

Before Madigan: A Brief History of the United States Supreme Court
and Charitable Solicitation Regulations

The United States Supreme Court has over sixty years of precedent that establishes that
charitable appeals for funds are within the protection of the First Amendment. But it was through three cases in the 1980s that the United States Supreme Court determined how far the government can go to exercise its power to regulate charitable solicitations without infringing upon a speaker's First Amendment rights.

Through these cases, Schaumburg, Munson, and Riley, the United States Supreme Court
established and reaffirmed that:

• Charitable solicitation speech is entitled to the highest constitutional protection under
  the First Amendment because it is inextricably intertwined with informative and persuasive
  speech.
• Because charitable solicitations often involve advocacy or efforts to educate the public,
  the government cannot use a percentage of funds retained by the fundraiser as an indicator of
  fraud.
• The government cannot require nonprofits or their agents to disclose their fees or the
  costs of fundraising during a solicitation (unless asked by the prospective donor) because
  although the information might be relevant to the listener, a law compelling such a disclosure
  clearly and substantially burdens the protected speech.

Schaumburg
In Village of Schaumburg v. Citizens for a Better Environment (444 U.S. 620) in 1980, Citizens for a Better Environment challenged a city ordinance that required a charity to demonstrate that at least 75 percent of the money it raised would be used for charitable purposes before the city would issue a permit to solicit door-to-door for donations. The U.S. Supreme Court ruled for Citizens for a Better Environment, finding that appeals for funds and advocating for a cause are “characteristically intertwined” as protected free speech under the First Amendment and that a percentage-based limitation is not a “precise tool” to achieve the city’s legitimate interest of preventing fraud.

Munson
In Secretary of State of Maryland v. J.H. Munson Co. (467 U.S. 947) in 1984, a professional
fundraiser challenged the Maryland statute that prohibited a charitable organization from paying expenses of more than 25 percent of the amount raised in connection with any fundraising activity. The statute authorized the Secretary of State to waive this limitation where it would effectively prevent the organization from raising contributions. The U.S. Supreme Court held that regardless of the waiver provision, the statute is unconstitutionally overbroad and that its percentage restriction on charitable solicitation is an unconstitutional limitation on protected First Amendment solicitation activity. The Court also clearly stated that the laws that rely on percentage limitations operate under the “fundamentally mistaken premise that high solicitation costs are an accurate measure of fraud.”

Riley
In Riley v. National Federation of the Blind (487 U.S. 781) in 1988, a coalition of professional
fundraisers and charities challenged the North Carolina statute that defined the “reasonable fee” that a professional fundraiser may charge according to a three-tiered schedule. The statute classified a fee of up to 20 percent of receipts collected as “reasonable,” a fee between 20 percent and 35 percent as “unreasonable” unless the organization could demonstrate that advocacy was a part of the activity, and a fee exceeding 35 percent as “presumed unreasonable,” a presumption that could be rebutted by demonstrating that the fee was necessary either because advocacy was part of the activity, or because the charity’s ability to raise money or communicate would be significantly diminished otherwise.

The Act also provided that a professional fundraiser must disclose to potential donors the average percentage of gross receipts actually turned over to charities by the fundraiser for all charitable solicitations conducted in the State within the previous 12 months (referred to as the “point-of-solicitation disclosure requirement”).

The Court ruled that the fee schedule of the North Carolina law was unconstitutional because
“prior cases teach that the solicitation of charitable contributions is protected speech, and that using percentages to decide the legality of the fundraiser’s fee is not narrowly tailored to the State’s interest in preventing fraud.”

The Court held that the point-of-solicitation provision was also unconstitutional. The Court
analogized that a law that would require a speaker who is trying to gather support for a particular government project to state how much over budget similar projects have gone before the speaker is allowed to discuss the current project, or a law that required a speaker supporting an incumbent candidate to state during every solicitation that candidate’s recent travel budget would be unconstitutional and that, although the information provided might be relevant to the listener, a law compelling such a disclosure clearly and substantially burdens the protected speech.

Approximately 23 states with laws similar to North Carolina were affected by the outcome of
Riley.