In 2007, state representative Joe Coto introduced “The Foundation Diversity and Transparency Act” at the behest of the Berkeley-based activist group, Greenlining. The organization claimed that though “communities of color” made up the majority of Californians, the state’s foundations were spending only 5% of their dollars on them. Since these philanthropies receive tax-exempt status, Greenlining argued, they should be held more “accountable” to the public.

If these numbers sound fishy, it’s because they are. Greenlining only counts money as going to minorities if it’s given to organizations whose board and staff are more than 50% minority. Thus an inner-city Catholic school with a 95% black population wouldn’t qualify if its teachers were mostly white. As well, these are private foundations whose donors gave money for specific causes, such as cancer treatments or the environment. Presumably they’d like the money to go to people who can accomplish these goals most effectively, rather than to some pol’s allies.

Despite the objections of the state’s nonprofit sector to this remarkable government grab, the bill passed through the Democrat-controlled assembly and was heard this spring by the state Senate’s business and economic development committee. Mark Ridley-Thomas, the committee chair and head of the black caucus, had the votes to get it out of committee and through the Senate. Locked in a tight primary race for Los Angeles County Board of Supervisors, Mr. Ridley-Thomas apparently was playing this issue for all it was worth, promising his South Central L.A. constituents that he would, as California political blogger Stephen Frank put it, “make sure the rich white foundations would give their money to local nonprofits.”

Dr. Robert Ross, president and CEO of the California Endowment, a private health foundation that works with underserved populations, was at the Senate hearing. He reports that the state’s foundations “were roughed up pretty badly.” The message, from the bill’s supporters, he says, was that “well-heeled philanthropy is too busy spending money on opera and museums of fine art to make their resources available to minority and low-income communities.” But there was room for compromise, apparently. “Mr. Ridley-Thomas related to us, and to me personally, ‘If you guys show some problem-solving leadership on this, we’ll look to that kindly.'” An offer they couldn’t refuse.

Dr. Ross and his colleagues agreed that by the end of the calendar year they would propose multiyear, multimillion-dollar initiatives to improve the access of minority-led organizations to foundation money and to help “train a diverse pipeline of executives, staff and board members for the nonprofit and philanthropic sectors.” Neither Dr. Ross nor his colleagues at other foundations were willing to give us a specific figure for the commitment, but Orson Aguilar, the incoming executive director at Greenlining, says he’s expecting somewhere in the range of $300 million to $500 million over the next five years.

A hefty price tag. Still, Fred Ali, the president and CEO of the Weingart Foundation, says it was worth it. “We need to do a better job of explaining the role of private foundations and how private foundations work,” including “our missions, restrictions on our activities and our donors’ intent.” Mr. Ali tells us a number of legislators didn’t understand all this before, but now he believes they do.

Greelining’s Mr. Aguilar, however, tells us what his side learned was that “foundations can be as reactionary as corporations when it comes to something as simple as data gathering.” While the 10 foundations that signed on to this compromise do have serving minority and low-income communities at the heart of their missions, Mr. Aguilar says the state’s other foundations just need to be more creative about this diversity goal. Foundations devoted to environmental change, he notes, should give money to minority-led organizations because “communities of color suffer most from global warming, if you look at asthma rates.”

When we last wrote about this topic (“The Color of Charity,” Feb. 4), we quoted a letter by Paul Brest, president of the William and Flora Hewlett Foundation, California’s largest foundation, to the state assembly: “[Our] fundamental operating principle is to direct our resources to organizations that have the promise of making the greatest difference in achieving [philanthropic] goals. Thus, we do not focus on the racial composition of our grantees, but rather on how to achieve measurable impact in improving the lives of the communities that our grant recipients serve.” This is still an eloquent summary of the problems with diversity initiatives. Alas, Mr. Brest apparently didn’t have the courage of his convictions and the Hewlett Foundation was one of the signatories to this “compromise.”

The capitulation of leaders like Dr. Ross, Mr. Brest and Mr. Ali may only cost their foundations a chunk of change, but they have implications for the freedom of charities nationwide. With similar legislative initiatives being discussed in New York, Florida, Pennsylvania, New Jersey and even in Congress, the great philanthropy shakedown may be coming soon to a neighborhood near you.