February 22, 2012; Source: The Good Counsel

It’s said the road to hell is paved with good intentions. But for nonprofits, it may be paved with bottle caps and rotting banana peels. Why? In yet another erosion of long-standing beneficial reciprocity between the public sector and nonprofits, New York City officials are considering charging nonprofits the full cost of garbage services. It’s one more reflection of pressures to cut services due to strapped municipal budgets. Even worse, according to Antony Bugg-Levine of the Nonprofit Finance Fund, demographic trends and public debt are driving us toward a long-term “existential crisis that is just beginning to reveal its true ugliness.”

Historically, tax codes have reflected an assumed symbiotic relationship between the goals of nonprofits and the public sector. By organizing to provide health care, education, culture and critical safety net services, nonprofits have filled market gaps and provided flexible services for the public good. Just as importantly, nonprofits have mobilized volunteers to help deliver these benefits, tapping a cultural characteristic, noted almost two centuries ago by Alexis de Tocqueville, which is particularly strong in the U.S. Finally, nonprofits are a significant direct employer, accounting for nearly 10 percent of U.S. jobs, according to a recent study by Johns Hopkins University.

In exchange for these public goods, the nonprofit sector has been thanked with tax incentives and exemptions. The most well known tax code feature currently under fire is the federal charitable tax deduction for contributions to nonprofits. Local real estate tax and fee exemptions are also common tools used by municipal governments to help nonprofits reduce operating expenses. In the past, many nonprofits have made voluntary payments in lieu of taxes (PILOTs) to help public coffers. As NPQ has reported, however, the principle of nonprofit tax exemption has been increasingly challenged, and mandatory fees are becoming more common for various public services for which nonprofits were not previously charged.

It may get far worse before it gets better. Both government and nonprofits, especially local government and basic service agencies, face sustained increases in demand for services and reductions in funding. On its own, increased advocacy to defend government aid for nonprofits won’t solve the basic untenable fiscal disconnects. While new service delivery models can help, nonprofits need a nonpartisan political strategy to, as James V. Toscano put it, “stake out a public stance on the legitimacy and place of nonprofit organizations in the society, the economy, and yes, the polity.” To survive and thrive in the years ahead, we’ll need to redefine and reinvigorate viable, reciprocal relationships on which all parties can rely. –Kathi Jaworski