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June 4, 2012

Consistent or Unconstitutional: Analysis of New Kansas Contract and Grant Language Limiting Speech
This memorandum analyzes whether new language that the State of Kansas is inserting into its contracts and grants with nonprofit human services providers (and other entities) is consistent with federal language, or is an unsupportable violation of fundamental rights embedded in the United States and Kansas Constitutions. Background On May 29, 2012, the KHI News Service reported that the Kansas Department of Social and Rehabilitation Services (SRS) has started inserting the following language in its contracts with service providers: “No funds allowed under this agreement may be expended by the recipient of the grant to pay, directly or indirectly, any person for influencing or attempting to influence an officer or employee of any agency, a member, or employee of a member of the United States Congress or the Kansas Legislature.” The article quotes an email from an SRS official who offered the following rationale for the new language:
“It is just good public policy to prohibit the use of taxpayer dollars to lobby the Legislature to spend even more taxpayer dollars,” she wrote. “That is an abusive practice that leads to other sorts of inappropriate use of taxpayer funds. And that is the reasoning behind both what SRS is doing and what the federal government is requiring. I can’t imagine any of our providers not wanting to comply with federal law and with the requirements of a contract that they have signed.”

The news article goes on to quote the State official as saying that Kansas plans to include the new language in all state-administered contracts and grants, not just those at SRS, so presumably this expansion would include contracts with for-profit businesses and grants to government entities, including local governments and public universities. Why It Matters Before turning to the analysis, it is important to understand what is at stake. A straightforward reading of the new Kansas contract and grant language reveals that the language would apply to any activity that could be interpreted by the State as “influencing or attempting to influence an officer or employee of any agency” (and because “agency” is undefined, that would include any federal, state, or local government agency and perhaps any nonprofit “agency”). The new

National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

language also will reach any activity that could be interpreted by the State as “influencing or attempting to influence … any … member, or employee of a member of the United States Congress or the Kansas Legislature.” Here are some examples of how the new language would apply:
 An entity contracting with the state would violate the new Kansas language by calling, emailing, or otherwise contacting (“attempting to influence”) any local, state, or federal agency employee to recommend that a person be assigned to a specific residential care facility or that a client receive specific services within a program; An entity with a state grant to provide certain services to children would be prohibited from advocating on behalf of a child for expanded benefits to which the child is eligible under existing law; A nonprofit domestic violence shelter (or food bank or other nonprofit providing services under contract with the state) would not be able to call a local, state, or federal agency to draw attention to problems in the administration of programs, point out ways to improve policies to save taxpayers money, identify people who are ineligible for services, call for additional services or treatment needed by a vulnerable population, or to report a violation of a law, such as discriminatory practices by a government agency or even suspected child abuse; A nonprofit case worker for the developmentally disabled or someone suffering from mental illness would not be able to contact a local, state, or federal agency to help a client fill out appropriate paperwork; A government entity in Kansas receiving a state contract or grant (such as a university, a law enforcement agency, or public health facility receiving federal pass-through grants) would not be able to contact other local, state, or federal agencies to accomplish the public’s work;

A state grantee that answers a reporter’s questions about the impact of a government action – whether a human interest story or a tragedy – will, as a result of a published story, will be said to have “influenced” the action of public official who opens an investigation or changes priorities of the agency; and
An entity with a state contract or grant would not be able to respond to a request from any government employee or officer who seeks help in (a) getting assistance for a constituent, (b) getting assistance for the employee’s or officer’s own relatives or neighbors, or (c) getting background data to help that employee or officer do their job on behalf of the public.

If the State determines that the contractor or grantee engaged in any of the foregoing or any other activity that the State believes amounted to “attempting to influence” any government employee or official, then the State could declare a breach of contract and impose a variety of penalties, including withholding contract payments, cancelling the contract, or banning the contractor from receiving future contracts. So by doing the job for which it was hired by the State, an entity could also be accused of breaching its contract and therefore risk not being paid. A state contractor’s only logical response to any of the preceding examples is to avoid communicating with federal, state, or local employees or officials out of fear that the official or employee may be “influenced” directly or indirectly to do his or her job.
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National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

Analysis A. The State’s New Language Is Inconsistent with “Similar” Federal Language An SRS official offered two justifications for the State’s new language, suggesting that it would simply (a) “prohibit the use of taxpayer dollars to lobby the Legislature to spend even more taxpayer dollars,” and (b) track federal law and “what the federal government is requiring.” A fair review of the facts reveals that neither suggestion is true. This ban of speech goes much further than just lobbying for more money from the Kansas Legislature. The new State language will prohibit any and all communications that might be perceived as an attempt to influence not only a member or employee or Congress or the Kansas Legislature, but also any “officer or employee” of “any agency.” Because “agency” is not limited in scope, the plain language sweeps in any and all agencies at the federal, state, and local levels (including all agencies within all Kansas counties, municipalities, school districts, and special districts). Indeed, because many people often refer to charitable nonprofits as “agencies,” the language may even reach communications by a contractor to a nonprofit. Although Kansas might have intended the language to reach only legislative lobbying, it actually goes much further to ban communications with seemingly countless federal, state, local, and nonprofit “agencies” and millions of employees of those agencies. Moreover, contrary to the State’s assertion, this ban on speech goes far beyond federal law and “what the federal government is requiring.” The new Kansas language – while deceptively similar to federal language – is wildly divergent. The federal prohibition against using federal funds to lobby Congress is narrowly focused: “None of the funds made available by this Act shall be used in any way, directly or indirectly, to influence congressional action on any legislation or appropriation matters pending before the Congress.” See Consolidated Appropriations Act of 2012 (H.R. 2055) § 8013 (emphasis added). Yet the new Kansas language does not focus on the action (“congressional action on any legislation or appropriation” actually “pending before the Congress”), and instead looks at whether the communication might influence any government employee or official at the local, state, or federal levels (“an officer or employee of any agency, a member, or employee of a member of the United States Congress or the Kansas Legislature”). Kansas never connects the “attempt to influence” to “pending” “legislation or appropriation matters,” or indeed even to any subject matter – present or future. To put it simply, while federal law focuses on particular congressional action on pending matters, the Kansas language applies to an endless array of people who might be influenced or attempted to be influenced regarding anything. Again, that may not be what Kansas intended, but that is what a plain reading of the new language would produce.

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National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

B. The State’s New Language Infringes Constitutional Rights The new Kansas language is fatally flawed because it violates the U.S. and Kansas Constitutions.
1. The language violates the First Amendment.

The new Kansas language effectively imposes a gag order on human service providers contracting with the State by restricting their rights of free speech and to petition their government, which are fundamental freedoms imbedded in the First Amendment to the United States Constitution and Kansas Constitution’s Bill of Rights. Restrictions on those rights must be narrowly construed. Here Kansas, instead of narrowly tailoring the restriction on using contractor-earned funds for lobbying for more appropriations on pending matters before Congress, as federal law does, bans all efforts to “attempt to influence” any level of government on any topic, now or in the future. Thus, employees, vendors, or others paid “indirectly” by contract or grant funds would be banned from reporting violations of the law, advocating for policy improvements that would help disadvantage and protected populations, and even identifying ways to save taxpayer dollars. The sweeping language also violates journalists’ First Amendment free press rights to gather information and report to, and on behalf of, the public. For instance, a government contractor who answers a reporter’s phone call or email at work and responds to questions about the impact of a government policy or proposed action – whether a human interest story or a tragedy – could be accused of “attempting to influence an officer or employee of any [local, state, or federal] agency.” That simple act would breach the contract, thus allowing the State to withhold payment for some or all of the work it had performed, cancel the contract, or ban the contractor from receiving future contracts. Given those outsized penalties, entities in Kansas with government contracts will instruct all of their employees, board members, volunteers, outside contractors, sub-grantees, vendors, and others to never talk with another reporter. The chilling effect will be most severe. As shown above, the new Kansas language is not limited to efforts to “lobby the Legislature for more money.” Lobbying for more appropriations certainly would be caught within the trap, but so would all speech and advocacy efforts by case workers doing their jobs by helping their clients. Virtually any and all communications, directly and indirectly, with public employees or officials would raise intolerable risks. At bottom, the only safe behavior that would comply with the new contract language is to remain silent – a result that is an abrupt affront to the Constitutions of the United States and Kansas.
2. The language is so vague and ambiguous and overly-broad that it is constitutionally unconscionable.

The new Kansas contract language is so unconstitutionally vague and ambiguous and overlybroad that it violates the due process clauses in ways rendering the contract language to be unconscionable.

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National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

When dealing with the government, a person should not have to guess whether their actions (or even non-actions) may or may not trigger a loss of their rights. Here, the new Kansas language is so vague and ambiguous that it forces contractors and grantees to guess how the State will interpret their actions (and actions by untold others that the contractor or grantee pays “indirectly”), and so overly-broad that the State can do most anything, thus putting contractors and grantees at risk of losing their property rights. To cite just a few examples:
 What does “attempt to influence” any government employee mean? The new Kansas contract language is unlike federal law in that it fails to narrow the concept of “influencing” to specific pending matters. It is this lack of specificity – the failure to give any guidance as to what “influencing or attempting to influence” pertains – that a contractor or grantee is left to speculate as to what is and is not prohibited by the contract language. Also, without a defined time period (such as the federal law, which is limited to matters currently “pending before the Congress”), “attempting to influence” untold future events is almost impossible to avoid. For instance, a nonprofit that does a great job in delivering social services in an innovative way might inspire (“influence”) a government employee of an agency, the Kansas Legislature, or Congress to replicate the program elsewhere. Being both vague and overly-broad, the “attempting to influence” any government employee or official language puts a government contractor in a no-win situation, allowing Kansas to stop paying them, cancelling their contract, or blacklisting them from future contracts for doing their job well. What does “directly or indirectly” pay mean? Federal law that places the words “directly or indirectly” next to the “attempt to influence” to prevent subterfuge in trying to influence pending legislation and appropriation matters before Congress. Kansas moves the “directly or indirectly” next to “pay.” The inclusion of the phrase “directly or indirectly” in this context is exceedingly problematical. How far down the line of “indirectly” pay does liability flow? Just to the contractor or grantee? If that were the case, then the State could stop with just “directly,” so “indirectly” must mean something. Would a contractor that uses funds to pay for their employees to get training for providing services need to instruct their employees not to ask any questions at the training for fear that the questions might “influence” an unknown government employee in the audience? Do the limitations apply to board members and volunteers? They are not paid salaries, but might “indirectly” get paid in pizza or coffee at events and meetings. Would the restrictions be extended to cover a grantee’s vendors that supply accounting services or IT services or supplies of papers and ink? Would the grantee now become responsible for the efforts by their vendors when they “attempt to influence” a government official or employee? What does “agency” mean? Because it is left undefined, any plain reading naturally would include any and all government agencies at all levels, including thousands within Kansas alone when one adds up all of the various agencies within all of Kansas’ counties, cities, towns, school districts, and special districts. Plus, many people refer to nonprofits as “agencies.” So would a nonprofit contractor that talks with another nonprofit to make sure a client receives proper services be guilty of “attempting to influence” another agency?

Making the situation worse, it appears that the State – which is insisting that this vague and ambiguous language be inserted into future contracts – believes it would determine whether a
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National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

contractor or grantee somehow violated the very language that is so arbitrary and amorphous. Having the State insist on including this vague language makes this a one-sided contract of adhesion that is fundamentally unfair and unenforceable. Having the State then decide whether there is a breach of its vague language, thus allowing it to not pay on the contract for services already rendered or cancel the contract, makes this a constitutionally unconscionable contract. C. Adding Contract Insult to Ongoing Injury in a State That Already Trails the Nation An analysis of the new contract language cannot omit scrutiny of Kansas’ existing poor record of how it treats its nonprofit partners that are providing services on behalf of government. In 2010, the Urban Institute issued a report, Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants, documenting for the first time on a national and state-by-state basis both the existence and magnitude of problems created by governments contracting with human service nonprofits. The Urban Institute found that more than half of the nonprofits surveyed reported problems in each of these five areas: governments (i) failing to pay the full costs of the services for which they contract, (ii) imposing unnecessarily complex bidding burdens and (iii) reporting requirements, (iv) changing contract terms in mid-stream, and (v) paying late on their legallybinding contracts. As set forth in the attached Urban Institute data, Kansas ranks in the bottom quarter of states for failing to pay the full costs of services (ranked #13, with #1 being the worst and #51 being the best) and paying their nonprofit contractors late (ranked #12). According to nearly three out of five (59 percent) of organizations responding to the survey, Kansas imposes a match requirement on government contracts with nonprofits. That “match requirement” essentially means that instead of the state paying full costs – as it does to for-profit entities – Kansas requires nonprofits to go out and raise matching funds to do the work for the government. Similarly, respondents reported that Kansas arbitrarily limits program overhead or administrative expenses (58 percent), thus forcing the nonprofits to raise money from the private sector to fund activities that otherwise would be borne by governments. (For comparison purposes, data for other states and other information can be retrieved from a dedicated web portal relating to the Government-Nonprofit Contracting Project.) Most significantly for this analysis, the Urban Institute survey ranked Kansas as the sixth worst state in changing contract terms in mid-stream. This means “government changes to contracts and grants after they had been approved,” according to the full Urban Institute report at page 14. Specifically, the report found, “Nonprofits said some government agencies cancelled or postponed their contracts or grants, cut payments, or made other costly changes.” The addition of the new constitutionally-challenged contract terms follows the ignoble tradition in Kansas of abusing the contracting relationship with nonprofit service providers. In stark
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National Council of Nonprofits

Analysis of New Kansas Contract and Grant Language

contrast, when state government officials sat down as partners with nonprofit leaders in Connecticut, Illinois, Maryland, North Carolina, and Texas – as occurred in 2011 – they started developing solutions that will improve services for the people who need them most, ensure that taxpayers receive full value for the programs they are funding, and strengthen communities. Likewise, a New York working group and a New Jersey Red-Tape Review Commission began looking into needed reforms to streamline the interactions between government, nonprofits, and others. In each of these states, representatives of government agencies that contract with nonprofit human service providers collaborated with nonprofit contractors to identify problems and solutions to broken contracting policies, procedures, and practices. That important work of updating antiquated and broken contracting systems that hurt taxpayers and others is not done by any means, but at least other states are beginning to take serious steps to solve problems. Elsewhere in the country, public officials have found that collaborations with nonprofit contractors are effective ways to solve problems that serve everyone’s best interests. Kansas – through this misguided and harmful addition – appears to be going in the direction of greater confrontation and, in the process, is devolving into one of the very worst offenders in the country. Conclusion Nonprofit organizations exist to pursue their missions of improving lives and strengthening communities. Core elements of nonprofit work entail civic engagement, giving voice to the voiceless, and speaking truth to power. The new language in Kansas contracts and grants with nonprofit service providers is unnecessary, unconstitutional, and un-American. Further, it exacerbates the pre-existing contracting problems that land Kansas in the bottom quarter of the states. The new contract language is an unsupportable abridgement of the fundamental advocacy and speech rights of nonprofit organizations in Kansas and should be stricken from existing contracts and withheld from all future negotiations. ______________________ The National Council of Nonprofits, the nation’s largest network of nonprofit organizations with more than 25,000 member nonprofit organizations, works through its member State Associations to amplify the voices of America’s local community-based nonprofit organizations, help them engage in critical policy issues affecting the sector, manage and lead more effectively, collaborate and exchange solutions, and achieve greater impact in their communities. The National Council also operates the Center for Lobbying in the Public Interest, with its mission of “promoting, supporting, and protecting nonprofit advocacy and lobbying.”

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URBAN INSTITUTE

Center on Nonprofits and Philanthropy

KANSAS
Human Service Nonprofits with Government Contracts/Grants* Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .341 Types of Nonprofits with Government Contracts/Grants Crime and legal related . . . . . . . . . . . . . . . . . . . .1% Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . 12% Food, agriculture, and nutrition . . . . . . . . . . . . <1% Housing and shelter . . . . . . . . . . . . . . . . . . . . . 10% Public safety and disaster relief . . . . . . . . . . . . <1% Youth development . . . . . . . . . . . . . . . . . . . . . <1% Human service: multipurpose . . . . . . . . . . . . . .75% Community and economic development . . . . . . 2% Total contracts/grants . . . . . . . . . . . . . . . . . . .100% Nonprofits with Government Contracts/Grants, by Level Local government . . . . . . . . . . . . . . . . . . . . . . .78% State government . . . . . . . . . . . . . . . . . . . . . . . 81% Federal government . . . . . . . . . . . . . . . . . . . . . 84%
CONTRACTING PROBLEMS

National Study of NonprofitGovernment Contracting
Survey Results (2009 Data)

NONPROFIT-GOVERNMENT CONTRACTS AND GRANTS: OVERVIEW

2009 Government Contracting Experience Compared to Prior Years
Better, 6%

Worse, 43% About the same, 51%

Number of Government Contracts/Grants per Nonprofit 1 government contract/grant . . . . . . . . . . . . . . . . 22% 2–4 government contracts/grants . . . . . . . . . . . . 46% 5 or more government contracts/grants . . . . . . . .32% Total Nonprofit Government Contracts/Grants, by Level Local government . . . . . . . . . . . . . . . . . . . . . . . . . 8% State government . . . . . . . . . . . . . . . . . . . . . . . . .38% Federal government . . . . . . . . . . . . . . . . . . . . . . .54%
State Ranking:** Small and Big Problems
43%

Key Problems Reported for Government Contracts
Payments do not cover full cost of contracted services Complexity/time required for reporting on grants/contracts Complexity/time required by application process Government changes to contracts/grants Late payments (beyond contract specifications)
0% 11% 41% 10% 20% 30% 40% 20% 30% 32% 38%

13

25%

31% 31% 31% 31%

42

38%

40

50%

6 12
60%
1=highest percentage of nonprofits with problems; 51=lowest percentage of nonprofits with problems

48% 50%

Not a problem

Small problem

Big problem

CONTRACTING PROBLEMS (CONT’D)

RECESSION

Nonprofits with Late Payments from Government Kansas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39% Nationwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41% Most Common Past Due Period for GovernContract/Grant Payments, by Level Local government . . . . . . . . . . . . . . . . . . . . . n/r*** State government . . . . . . . . . . . . . . 90 days or more Federal government . . . . . . . . . . . . 90 days or more
CONTRACT LIMITATIONS

Nonprofits with Deficits, by Expenditure Size
60% 43% 40% 30% 20% 47% 43% 38% 40% 42% 36%

0%

Nonprofits Reporting Contract Limitations, by Type
Require matching or sharing costs. . . . . . . . . . .59% Limit program administrative/overhead. . . . . . .58% Limit organization administrative/overhead . . .56%

$100,000─ $250,000─ $1 million $249,999 $999,999 or more

Overall

Kansas

Nationwide

ACCOUNTABILITY AND REPORTING

Nonprofits That Report Outcomes or Give Feedback to the Government
Report results/outcomes of programs . . . . . . . . 80% Give feedback on contracting procedures . . . . .60%

Kansas Nonprofits Experiencing Declines in Revenue Local government agencies . . . . . . . . . . . . . . . . .52% State government agencies . . . . . . . . . . . . . . . . . 81% Federal government agencies. . . . . . . . . . . . . . . .29% Individual donations . . . . . . . . . . . . . . . . . . . . . . 59% Private foundations . . . . . . . . . . . . . . . . . . . . . . . 50% Corporate donations . . . . . . . . . . . . . . . . . . . . . 68% Investment income . . . . . . . . . . . . . . . . . . . . . . 59%

Actions Taken by Human Service Nonprofits in 2009
Freeze or reduce employee salaries Draw on reserves Reduce number of employees Reduce health, retirement or other staff benefits Borrow funds or increase line(s) of credit Reduce number of programs or services 14% 22% 23% 22% 22% 21% Kansas Nationwide 35% 39% 35% 38% 54% 50%

Source: The Urban Institute National Survey of Nonprofit-Government Contracting and Grants, 2010. Notes: Percentages may not sum to 100 because of rounding. Full report available at http://www.urban.org/url.cfm?ID=412159. *Number is based on a selected group of direct human service providers with budgets greater than $100,000. **See appendix for more details on state rankings. ***Data not reported or too few respondents answered the question.

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