Is the Honeymoon Over?
A post by James V. Toscano
Is the long honeymoon between government and nonprofits winding up on a particularly sour note?
In my last posting, Plus Ca Change, the role of nonprofits in advocacy with government was discussed. Here the effects of changes in public policy and efforts of nonprofits to find new sources of revenue are discussed.
A recent Christian Science Monitor story. “A Political Chill for Charities?” details a number of moves made by cash-strapped government units on the governance, operations and, especially, finances of nonprofits.
Journalist Jeremiah Hall writes:
“Perhaps the greatest threat is to a charity’s finances. Nonprofits are increasingly facing a one-two punch: Government agencies are cutting back on direct funding and both major political parties are seriously considering killing the charitable tax deductions for donors. Some lawmakers are calling for limits on that deduction or its elimination altogether.”
Which is the greater threat? Cutbacks or loss of the charitable deduction? They are both financial. Hall thinks loss of the deduction. Perhaps, although it is much more complicated, largely because government funding and charitable donations are not evenly proportioned among all nonprofits.
A number of nonprofits have focused and remain focused on government contracts and grants, which are the major source of their income. Many have little charitable support. At the other end of the spectrum are those nonprofits that receive little or no governmental aid.
The bottom line is that there will proportionately be less revenue available from government and from charitable donations.. This government-nonprofit change is part of larger tectonic movements in American society.
Simpson-Bowles
The Fiscal Cliff debate that begins this week will be the first battleground.
Tax policy is front and center, with the intention of reducing and eliminating loopholes. Some of our country’s leaders think of charitable deductions as “loopholes.”
The Simpson-Bowles plan, initially rejected in 2010 by almost all on both sides of the aisle, is now the item of top discussion on tax policy and many other issues, all of which affect nonprofits and their employees, as they do everyone.
In terms of tax policy, the charitable tax deduction, with its many defenders, may be able to withstand the assault this month, although it is only the first battle.
From those who argue that donations to religious organizations are a hidden subsidy of religion by government to those who argue that all deductions bias democracy in favor of special interests, it will be a continuing war. And it eventually will change much of the fabric of all of our nonprofit relationships.
For example, many other societal issues that also affect nonprofits will get scrutiny. Changes in Medicare, Medicaid, and Social Security, and changes here largely mean cuts, will have an effect on all, clearly making the work of social service nonprofits even harder.
And health care spending, regardless of what happens to the Affordable Care Act, will have a profound impact on society as we age and impact medial service and nursing home utilization. If the current government safety net is down, will nonprofits be able to pick up the burden?
This is just one example of the social contract changing, and all of us in nonprofits will be affected by the change.
With the looming deficit and the laggard economy, there is no appetite for increases in taxes, perhaps in charitable donation increases as well. And this is the main point of this essay.
The Traditional Honeymoons are Over
It isn’t just the government-nonprofit honeymoon that is redefining and will be a less substantial part of nonprofit finances, presently a third of all revenue.
The traditional donor-nonprofit exchange is also undergoing a decline. Major donors are focusing and cutting donations. The top donors usually rely on capital gains for much of their donation revenue, and capital gains taxes are also on the Fiscal Cliff.
So we are in for a reordering of many of the nonprofit relationships with government, donors, as well as foundations and business, which are not immune from all that is happening.
Now It’s Time to Rekindle and Rethink All of the Marriages
Are we ready for this reordering? We’d better, because it’s happening and will not stop. All government funds, all donations, all grants will not go away, they will just be insufficient for significant nonprofit survival.
New sources of revenue, of resources, will need to be developed, so that we can continue to serve society, producing the public benefit so necessary for a civil, ordered society.
We will have many allies, given the nature of what we do in nonprofit work. How do we turn all of the goodwill and general public appreciation of our work into the financial support we need to do the job?
What about crowd-sourcing? What about getting paid for beneficial outcomes? What about new ways of using social media? What about a very different use of mobile media, where most of our fellow citizens will be?
How will we organize? Will the classic C 3 model be the norm, or will some of us gravitate to B-Corporations?
Perhaps, we can figure out ways of selling bonds with returns based on impact, as we see spreading around the country.
Or maybe we stick to our traditional public benefit mission focus, and change everything else. However we organize, we now need to break all the rules, go way out of the box, invent, create, inspire, prevent, promote, enliven, so we can do our work well, all with a wider resource base and, hopefully a wider constituency and a much wider impact.