Nonprofit Leaders Respond to the Budget Crunch

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March 30, 2011; Source: Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal | Could the situation of nonprofits get worse? Slammed by budget cuts and foundation retrenchment trying to respond to ever-escalating service demands in the never-ending recession, nonprofits might feel like they are meandering through a “crunch time” which some just might not survive.

The Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal and the Nonprofit Quarterly cosponsored a panel discussion on “Crunch Time for Nonprofits” yesterday and learned the expected and the unexpected from the four panelists (and Hudson’s Bill Schambra): The crunch on nonprofits is real and massive, the solutions require both short term and long run, and not much will happen without nonprofits rising to the challenge, speaking out, and calling for the kind of changes. But what kinds of actions should nonprofits call for?

The Manhattan Institute’s Steven Malanga said that nonprofits – and government – face a challenge of the “great reset,” a time in which government needs to ask hard questions about “what are the priorities we have to fund,” looking for the programs necessary for keeping people “afloat.” That would mean putting off some government programs that focus on longer-term investments.

But the Urban Institute’s Gene Steuerle, one of the nation’s top economists on government budgets (and on nonprofits too), said that the challenge is “how we can reorient our government to invest in our future,” suggesting however that devoting resources to children’s programs is a wise investment that really counts short and long term.

The National Council of Nonprofits’ CEO Tim Delaney enumerated the fiscal challenges to nonprofits at the state and local level – late payments, taxing nonprofits, abandoning programs to the nonprofit sector to pick up, and depriving nonprofits of a seat at the policy table—topics he has written about here at NPQ.

If nonprofits raise their advocacy voices, what do they ask for? To Delaney, the immediate threats to the nonprofit sector are the cuts in human service and safety net programs, dumping the responsibilities without resources onto nonprofits. Tell governments to “stop all the cuts.”

But Steuerle thinks that the problem is that we talk about nonprofits as a group when there are multiple kinds of organizations, some offering programs that work well and some that simply don’t. Schambra noted that the voice of nonprofits is somewhat undiscriminating, unwilling to distinguish among nonprofit programs the way Malanga suggests governments rethink their priorities. Steuerle indicated that nonprofits might have to acknowledge that not every kind of nonprofit tax deduction or exemption is “well designed or equally justifiable.” While Delaney might call for governments to be fairer to nonprofits, Steuerle countered that nonprofits should realize that they are dependent on government (2 percent of GDP is charitable and philanthropic giving, 20 percent of GDP is government expenditures on social welfare) and cannot be immune to the pain of budget balancing cuts.

The flexibility to do things might be in short supply. Malanga said that $8 billion out of New York City’s $64 billion budget is dedicated to pensions and benefits, 18 percent of the Los Angeles budget to pensions – expenditures that cannot be avoided. Steuerle said that the federal government spends $31,000 per household ($50,000 if you add in tax subsidies) but takes in only $19,000 per household in revenues. That structural gap means that tax revenues are already spoken for – and spent – before they are received. For Congress to do something for discretionary human service programs, it means reneging on already-made commitments.

Delaney called for nonprofit lobbying, NPQ board member and president and CEO of the Foundation for the Mid-South, Ivye Allen, advocated for foundation support for nonprofit public policy advocacy, but the crunch is upon us. How the nonprofit sector responds will reverberate through 501(c) organizations for decades.—Rick Cohen