Why Have Nonprofits Fizzled on the Sequester?

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While they were on vacation earlier this month, members of Congress undoubtedly heard plenty about the impacts of the budget sequester in local communities. If press coverage is any gauge, the public outcry focused on July 4th celebrations—reduced or cancelled fireworks and military flyovers. That might be enough to goose Congress into action to forestall the second year of the sequester that will start in October. It certainly hasn’t been the pain of the sequester felt by nonprofits and the communities they serve. Somehow, the nonprofit message on the sequester has felt like less than the sum of its parts…a crisis of federal budget cutbacks that, while real, have not manifested themselves in a way where nonprofits could tell a compelling, empirically factual story.

Some organizations have been regularly monitoring the sequester and calling to the public’s attention the effects of the cancellation of $85 billion in federal expenditures in Fiscal Year 2013—spread over only seven months of the fiscal year, rather than 12, due to the enactment of the American Taxpayer Relief Act of 2012, which started the sequester clock for the year as of March 1st, making the effective percentage reductions for non-exempt nondefense programs approximately 9 percent. A 501(c)(4) with close links to the Obama administration, the American Bridge 21^st Century Foundation, has a website called C-quest that has been collecting stories about the impacts of sequestration around the nation, covering any issue from poverty to defense that might be feeling the brunt. Progressive columnists and pundits such as Jared Bernstein at the Center for Budget and Policy Priorities and Nation writer Greg Kaufmann for Bill Moyers’ webpage, as well as the Coalition for Human Needs, have also been compiling sequestration stories, many of them involving nonprofit providers.

The significance of the sequester in general, and specifically to nonprofits, doesn’t seem to have gelled the way one would expect in response to the legislatively enacted promise of ten years of indiscriminate, across-the-board cuts in federal discretionary spending. There are several plausible explanations of pieces of the sequester non-story. Some of them result from the way the sequester has been rolled out by the federal government, and some from how the nonprofit sector itself has communicated its needs and priorities.

Pentagon sequestration sleight-of-hand: In the 1980s and 1990s, Presidents George H.W. Bush and Bill Clinton both touted a “peace dividend” that would result from lower military spending. Both presidents cut the size of the military in response to the end of the Cold War, with the idea that the money to be saved from the military cuts could be devoted to investment in neglected domestic needs. There are plenty of sources that indicate that spending on the military is much less useful to the U.S. economy than spending on domestic programs; one source suggests that $1 million in defense spending generates 8.3 jobs, but the same $1 million would generate 15.5 jobs in education, 14.3 jobs in healthcare, and roughly 12 jobs in home weatherization or alternative energy production. President Obama’s military establishment turned the prospect of post-Iraq and post-Afghanistan cuts to America’s bloated military spending into a campaign against defense-sequestered spending with hardly any pushback from the nonprofit sector, a demonstration of the political acumen of former Defense Secretary Leon Panetta. Panetta repeatedly bemoaned the devastating impacts of sequestration on the U.S. military, despite the gargantuan size of U.S. military spending, which is larger than the military budgets of the next dozen largest military-spending countries combined. Domestic spending advocates have confused their commitment to the needs of military veterans, addressing the needs of the hundreds of thousands returning stateside from two unnecessary wars in the Middle East, with having to appear committed to maintaining a gigantic Pentagon budget. Joseph Stiglitz and Linda Bilmes write that there will be no peace dividend after the U.S. withdrawal from Afghanistan, but part of the reason is the weak voice of domestic spending interests countering a rapacious military-industrial establishment, reflected in the position of Congressional Republicans and Democrats, both disproportionately concerned about the sequester’s impact on the Pentagon.
Nonprofit sector charitable giving cohesion: In the great debate over “saving” the charitable deduction, which really means preventing the imposition of a cap on the potential deductibility of very-high-income tax-itemizers, nonprofit sector leadership organizations achieved a remarkable near-consensus among 501(c)(3) public charities. Whether they were big foundations and mammoth universities or tiny neighborhood groups, which benefit quite differently from the giving patterns of the super-wealthy, nonprofits coalesced around a message to focus on the charitable deduction and to not raise questions about government funding. The theory was that everyone could basically agree about the charitable deduction, but introducing questions about federal government cutbacks would be too divisive. If you were in Congress, you would have heard nonprofits closing ranks around the importance of charitable giving. You might not have heard much about the importance of maintaining funding for human service programs in the federal budget, because that was off the table. From some nonprofits, as we heard in interviews, members of Congress heard that charitable giving was more effective and efficient than government funding, that a dollar of charitable giving goes much further than a dollar of government funding, and so forth. Now, with the charitable deduction temporarily saved, the nonprofit sector is expected to recoalesce against budget cuts, sequestration and more? Not only can’t government spending attract the vocal consensus that was accorded the charitable deduction, but with the specter of tax reform looming again, due to the roadshow of the Senate and House tax-writing committees, nonprofits are once again sounding the alarms about threats to the deduction. The message around federal spending is, once again, muffled and confused.
Constant crisis mode: In defending the charitable deduction, nonprofit advocates bemoaned the devastating, debilitating impact that President Obama’s proposed deductibility cap would have on nonprofits. The call to arms was one of crisis, and the mobilization that resulted was impressive. More recently, some charities have been aghast at the proposals of the Office of Personnel Management (OPM) regarding changes in the Combined Federal Campaign—changes they say will destroy the nation’s largest workplace charitable-giving program. While the charitable deduction cap, if enacted, might have caused the loss of some charitable giving, the nonprofit sector wouldn’t have imploded as a result, and the proposed CFC regs, while misguided and unhelpful, probably won’t end up destroying the CFC. But the tendency toward the extreme makes it hard for decision-makers to discern a similar argument that the first year’s sequester, and its continuation into a second year, will also destroy the nonprofit sector. The sequester is one truly thoughtless way of making changes in the federal budget, and its implications for many programs is terrible, but arguments about serial nuclear crises affecting the nonprofit sector lead at some point to an audience of decision-makers who are increasingly inured and harder to persuade by the argument.
Middle-class protections in the sequester: When protests by business travelers got Congress to explicitly authorize changes to protect air traffic controllers from sequestration-caused furloughs, the message was clear. Congress was going to act to protect the middle-class people who might be inconvenienced by the sequester, but would not act to protect programs like subsidized rental housing, Head Start for preschoolers, and reductions in CDBG funds. Within this nation’s increasingly divided class structure, there seems to be little energy around protecting the social safety net, so long as other economic interests are protected. Remember, for example, that even though House Republicans were prepared to cut food-stamp funding by $10 billion, Democrats in the Senate had approved a plan to cut the program by billions as well, just not nearly as deeply. But when the farm bill was divided, removing the provisions for food stamps, the remaining agribusiness subsidies sailed through both houses of Congress with bipartisan support. It’s hard to generate a lot of energy around the sequester when it’s the programs that serve the poor that are hit the hardest.
Short year, muddled implementation: The fact that the sequester didn’t start until half the fiscal year was done, and even then most agencies tried to find ways of stalling its impact, meant that much of the debate was prospective, about what was likely to happen, with the effects only hitting home in a concrete, major way in the third and fourth quarters. Moreover, the federal agencies themselves were unclear as to what they anticipated as the impacts of the sequester. How many AmeriCorps slots would be cut? How many VISTAs? Would the number of rent vouchers or the amount of subsidy per voucher be cut? When would the federal agencies actually announce their plans for implementing the sequester? How would nonprofits distinguish the impacts of cuts due to the sequester from the serial cuts they had suffered in the past few years’ federal budgets? Our interviews with nonprofits suggested not only continuing confusion about the sequester, but some lack of ability to precisely identify the specific impacts on their own operations. For many, in the typical nonprofit manner of scraping by, they have cut their overhead here, found ways of saving money there, and managed to forestall the worst of the sequestration’s impacts. That’s what nonprofits do so well; they get by no matter what obstacles are thrown at them, but eventually, the house of cards crashes. The White House, for its part, did its best to resist pressures from House Republicans to articulate an agency-by-agency, program-by-program analysis of how the sequester would be implemented, hoping to avoid being tagged with responsibility for this cut or that, but the end result was a muddled strategy that made it difficult to tell the American public exactly what the sequester was going to mean except through anecdotes. It would have been better to spell it out in detail and toss the results back at Congress, explaining for all its pain exactly what the sequester would mean in the deprivation of basic services to needy Americans.

The realities of the sequester, with the first year about to end and the second soon to start, do not seem to be prodding Congress to take any action to reverse course, perhaps owing to the strength of the economy withstanding and other macro-factors. But for nonprofits, the problem is that the sector’s message on the sequester has been confused and sometimes counterproductive. As Congress staggers toward October with the reality of a second year of the sequester, the nonprofit sector has to rethink its approach and initiate a campaign that makes sense to take on the sequester, whose inertia seems likely to continue past a relatively sequester-inert Capitol Hill. This is our suggested prescription:

Step 1: Rather than compiling anecdotes, nonprofit sector leadership organizations have to conduct a deep, thorough, but fast analysis of what the sequester has meant to the nonprofit sector in Year One and what it will mean in Year Two. It’s time for some number-crunching to articulate the overall meaning of the sequester, to explain that the impacts are more than the individual stories, that the sum of the parts is harmful to people in need. If it means raking a few agencies over the coals for their inadequate and incoherent manner of explaining what they were doing to implement the sequester, then do so. Agency by agency, program by program, merge the number-crunching and the storytelling to explain what a second year of the sequester will do.

Step 2: It’s time to de-emphasize the charitable deduction fight, even with congressional leaders talking up tax reform. So far, there has been a strong congressional consensus not to touch the deduction, to the point where other than President Obama, there is no one on Capitol Hill adding changes in the charitable deduction to his or her political resume. Even if the warring political parties were suddenly to enter a lovefest, there is no likelihood that there would be a quick comprehensive tax reform program, nor one that alters the charitable deduction. However, there is a decision right now, on the books, looming for a second year of the sequester, to be followed by a third, fourth, and fifth. What’s more real? Sequestration cuts or alterations in the charitable deduction? Shift gears, nonprofits.

Step 3: It’s also time to develop some guts around the U.S. military machine. Why the nonprofit sector has virtually rolled over on military expenditures is simply unfathomable. A nonprofit sector strategy that says that federal budget cuts could take much more out of the Pentagon and save much more on the domestic side of the budget is not unreasonable. A coherent nonprofit sector strategy could do what Congress and the White House seem unwilling to do even with the wind-down of warfare in Iraq and Afghanistan: design a peace dividend that will turn the investment this country has made in the military into investment it should make in domestic programs, in community infrastructure, in education, and in healthcare.

Step 4: Turn the budget into a campaign item. The nonprofit sector’s litmus test for federal, state, and local candidates should be their commitment to protecting domestic spending and bolstering the social safety net. In a nation of increasing racial and economic disparities, often reflected in distressed conditions in urban neighborhoods and rural towns, the members of Congress who represent those districts should be called to account, not about what they would do if somehow an ephemeral change in the charitable deduction were to be considered some years hence, but what they are going to do to redress conditions in the social safety net programs that have been gored and will be further gored by the sequester.