Nonprofit Governance, Nonprofit Tax

At a time when many nonprofit organizations are already facing huge financial challenges thanks to a lethargic economy and massive budget cuts, things could go from bad to worse if state and local governments have their way. A special report from the National Council of Nonprofits, “State Budget Crises: Ripping the Safety Net Held by Nonprofits,” highlights how municipalities across the country want to fill critical gaps in their budgets by wringing new revenue out of tax-exempt organizations. The trend is alarming says the Council, and the actions are particularly hurtful to already-tapped organizations—in some instances, threatening their very existence. For example, the report says governments are: • Cutting funds for human services. According to data compiled for the report, some 29 states have cut funds for health care programs, while 24 have cut funding for services for the elderly and disabled. In places like California, the cuts are, or will be, so dramatic that hundreds of thousands will be impacted. The people impacted by those cuts will turn to nonprofits who offer similar services, increasing demand on the hard-hit nonprofit community. • Withholding payments. Government agencies are withholding payments for services they are contracted to provide, according to many nonprofits; this creates cash flow problems and, in many cases, requires the organizations affected to take out high-interest “bridge” loans to cover operational costs. • Imposing new taxes and fees. State and local governments in many areas are attempting to end preferential tax treatment for nonprofits. This includes assessing new property taxes, sales taxes of nonprofit services in some areas, and even special fees. For example, in Minneapolis last year, lawmakers adopted a “streetlight fee” on roughly 1,600 nonprofits. The report says these measures will hurt more than the nonprofit organizations providing services—it will hurt entire communities as well. Those working in the sector may be faced with two unpleasant choices: absorbing the extra costs, meaning less funding for programs, or closing their doors. The Council says that much of this unwanted activity comes from government’s inability to grasp just how valuable the nonprofit sector is to society, and the report reminds all of us how significant a part the sector plays in the economy: Nonprofits nationwide employ more people than the 12.3 million employed by manufacturers in the United States, and more than the 11.6 million employed by the construction, finance and insurance industries combined, according to the report. The Council made a number of recommendations for both grantmakers and nonprofits to help them tackle these serious issues: For grantmakers, the Council primarily suggests convening community leaders to educate and inform grantees and fellow grantmakers about the impact that state budget cuts and other measures will have on charitable programs. By presenting a united front, and working together with other stakeholders to bring these issues to light, the Council says the nonprofit sector can help address many of these new challenges.