Nonprofits Don't Need A Bailout; Americans Give In Bad Times, Too

COMMENTARY Budget and Spending

Nonprofits Don't Need A Bailout; Americans Give In Bad Times, Too

Dec 23rd, 2008 4 min read

Coordinator of The Heritage Foundation's Moscow Office

John Von Kannon has been a key player in The Heritage Foundation’s...

Move aside, Motown. Make way, WaMu. There's a new mendicant bellying up to the bailout bar: America's charities.

Many of the private organizations established to meet pressing social needs and serve others now clamor for government aid. Those who once saw themselves primarily as servants now see themselves as pitiable victims.

"What about those of us in the nonprofit world? Where's our bailout?" wails nonprofit executive Teresa DeCrescenzo in a Dec. 1 column in the Los Angeles Times.

"Where is the storm of media coverage, the persuasive rhetoric, the public outcry to save critically needed services such as child care, assisted living, home healthcare and hospital services? Who is documenting our agony?"

Ms. DeCrescenzo is not alone. CQ Weekly reports that the Council on Foundations, the trade association for grant-making foundations, "is backing long-shot legislation that would create incentives for a surge in charitable giving."

Do America's charities - which received $306 billion in donations in 2007 - really need more federal attention? Or are charity advocates just using the current economic situation to wangle additional funds and advance their agendas?

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Today is certainly not the first time nonprofits have had to face a challenging economy. A look at how they've fared in recessions past might be instructive.

The Giving USA Foundation has tracked charitable giving for more than 50 years. It recently issued a report on giving from 1967 through 2007. During that period, America endured four years in which a recession lasted eight months or more.

Did charities wither and die as today's rhetoric suggests? Or were they saved by compassionate political leaders in Washington?

Actually, neither. Even in recessionary times, it seems charitable giving flourishes.

"Total giving has increased in current dollars in every year but one since recording began," the foundation reports. "The exception is 1987, when a tax law change in 1986 prompted some people to 'give early' in order to maximize the value of tax deductions they could claim."

That can't be right, Conventional Wisdom objects. Everybody knows that people cut their discretionary spending when times are tough. Charitable giving is the first to go.

But Conventional Wisdom is wrong.

"When the economy shows stress, whether it is a recession or not, giving may grow more slowly . . . (but) giving still grows," the Giving USA Foundation found. "In current dollars, before adjusting for inflation, giving has increased an average of 8.4% in years without a recession. In years with a recession, giving has increased 6.2% (also in current dollars)."

I've worked in the nonprofit world for 36 years in a variety of capacities - fundraiser, consultant and trustee. This much I've learned: Some charities do much better at attracting funding than others - no matter what the economy is like. Those who count on just a few sources of income tend to be most vulnerable in a general downturn. Those who draw from a broad base of support tend to do better.

There's a reason for that: Competition. It works in the nonprofit world just as it does in the fields of business, sports and entertainment.

Charities that rely on a small number of large gifts just don't have to make their case as often or as well as those who talk with - and listen to - their supporters all the time.

Charities that rely on state, local and federal government funding are especially vulnerable. Their fundraisers typically specialize in filling out forms to show that they meet guidelines, not in building relationships with "outside" donors.

When all your eggs are in a government-issue basket, you can be in serious trouble when state and local tax collections dip.

Unfortunately, too many in the nonprofit world seem to have an entitlement mentality. We do good work! Where is our funding?! (Or to avoid paraphrasing, "Who is documenting our agony?")

Others seem to be trying to use the current economic crisis to push their political agenda. Recently, the Johns Hopkins Nonprofit Listening Post Project produced a study called "Nonprofit Policy Priorities for the New Administration."

The report begins, "With a major economic crisis pressing in on families throughout the country, America needs its nonprofit organizations like never before." The authors polled nonprofit executives to learn what government should do to help. The 17-page report can be summarized in four words: Give us more money.

More specifically, the Hopkins project found executive support for the following legislative "fixes":

  • Restoration and/or growth in funds for your field in the federal budget (91.3%).
  • Reinstatement and expansion of tax incentives for individual charitable giving (96.2% extremely or somewhat useful).
  • Expansion of tax incentives to encourage volunteering (85.7%).
  • Student loan forgiveness for those working in the nonprofit sector (84.9%).

Nothing surprising in those self-serving recommendations. However, it was a bit jarring to see that more than 80% of these nonprofit executives also called for restoration of the estate tax. The report failed to explain how taxing away assets would increase a person's ability to give to charity.

The "Nonprofit Listening Post Project" is doing it wrong. Rather than listening to nonprofit executives as they spell out a Washington wish list, the project should advise the execs to start listening themselves - to any and all potential donors, not just those in government agencies. That's the way to broaden your base of support and withstand economic ebbs and flows.

One fundraising consulting firm advises charities that in tough economic times it is especially important to be "near, dear and clear" to their donors. Be on their minds. Be in their hearts. Make a compelling case for why your charity is necessary. Those who follow this advice won't need to go to Capitol Hill or a statehouse, cup in hand.

The American people are generous. They support their charities in good times and bad. And while some charities are suffering now, the answer is not expanded federal spending or bailouts.

What the nonprofit world needs is economic growth, and that comes through lower taxes, deregulation, free trade and limited government. When the economy is growing and people have more money, they will give even more of it away. And, while I'm not an economist, I'm guessing they will also use part of it to pay for their houses, cars and insurance.

John Von Kannon is vice president and treasurer of The Heritage Foundation.

First appeared in Investor's Business Daily