A bill purporting to encourage diversity among nonprofits has passed the California Assembly and faces a key vote in the state senate in early June. While little attention has been paid to this bill, it poses an enormous threat to private philanthropy in this country.

The Foundation Diversity and Transparency Act requires California foundations with $250 million in assets to report the composition by ethnicity and gender orientation of their boards and staffs, the boards and staffs of the charities they support, and the degree to which they are run by or support certain minorities.

The bill has been rightly criticized for its potentially crippling costs: fewer funds and greater bureaucratic burdens for the thousands of charities served by charitable foundations. Worse is the attempt to institute quotas through the back door. A group dedicated, say, to protecting sea otters, will begin to worry about the future of its grants if its staff isn’t sufficiently ethnically diverse, or if its non-minority-interest-serving cause is now less favored. Meanwhile, the Latina executive director of a community organization might wonder if putting a white woman or gay Alaskan Native on her board is a good idea to keep happy the diversity-counters at the foundations that support her organization.

The Greenlining Institute, a racial-justice advocacy group that is a strong sponsor of the bill, asserts that only “20% of foundation funding from the state’s 50 largest foundations is going to ‘minority serving’ causes,” an “embarrassingly low” number. Come again? In the first place, many foundations specialize in altogether different causes. Moreover, the phrase “minority-serving” deliberately obscures such everyone-serving causes as hospitals, medical research, homeless shelters, educational initiatives, substance-abuse treatment and environmental improvement activities. But even a charity that feeds or educates minority kids is not considered minority serving – unless the organization is itself 50%-plus minority staffed and minority controlled.

Champions of the bill claim that its only goal is to “request diversity data.” Then why force the donors to collect this information from grantees, instead of asking each registered charitable organization simply to report the information directly to the government? The bill’s critics fear the real goal is to pressure charities into meeting “diversity” goals out of fear of displeasing their funders – who themselves fear that ultimately their ability to set their own goals, or even their tax-exempt status, will be at risk if diversity goals aren’t met.

The bill creates the opportunity for grandstanding, public relations shakedowns, and litigation. Already, foundations that have questioned this legislation have been publicly attacked. The executive director of Greenlining recently stated that “most of our money comes from lawsuits.”

The “diversity” bill, if enacted into law, would be just the beginning. Already contemplated is legislation to cover all foundations, and all grant recipients, not just in California, but nationally; and to broaden reporting requirements to include the aged or the disabled. Ultimately, this all leads in one direction: to politically determine how private charities manage and deploy their resources.

At a recent hearing, state senators claimed that because of their tax exemptions, taxpayers “subsidize” charities and charitable money is “taxpayer money.” But a tax exemption must not be confused with an actual government appropriation. The benefits arising from various tax exemptions – everything from libraries to child care, art galleries to IRAs – do not mean that the private money involved is suddenly public, giving politicians the right to strong-arm givers, or recipients. Yet such is the direction California is going.

The state senate should understand what a disincentive – and an injustice – it would be for the government to micromanage private charity to favor a preferred political agenda, thereby turning private funds into public funds by diktat.

Ms. Higgins is Chairman of IWF’s Board of Directors and Vice Chairman of the Philanthropy Roundtable.