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Time to Start Preparing for the Unthinkable?

November 11, 2008

Is_logo_color_horizontalWe're broke.

That is, government -- federal, state, and local -- is broke. And over the next three to five years, the public sector increasingly is going to resemble a wounded animal as it hunts for revenues in order to meet its commitments.

That, at any rate, was the message delivered by the panelists at a Monday afternoon session ("Redefining the Charitable Community: What Should be Different? Who Decides?") which turned out to be a lot scarier -- and more entertaining -- than most in the audience could have anticipated.

Of course, given the provocative way in which the session was framed, maybe we shouldn't have been surprised. Moderator Sandra Vargas, president and CEO of the Minneapolis Foundation, and the panelists -- Frances Hill, a professor at the University of Miami Law School; Ford Bell, president and CEO of the American Association of Museums; and John DiIulio, Jr., the Frederick Fox Leadership Professor of Politics, Religion and Civil Society at the University of Pennsylvania (and former "faith-based czar" in the Bush White House) -- were asked to address the following: Does current tax policy favor tax-exempt organizations serving wealthier communities? Should the charitable deduction be restructured to encourage support for organizations serving the disadvantaged? Is it appropriate for charitable organizations to maintain large endowments when so many people today are in desperate need of services? Should tax-exempt organizations that receive their primary support from fees for service be subject to special rules? And how should the nonprofit community respond to these challenges?

While the panelists might not have seen eye-to-eye on some of the particulars, they were in agreement on the big things, including tax exemption (it is a subsidy; it exists to provide a public benefit to a "charitable class"; and, in a society facing growing needs and shrinking resources, it must become more "efficient" -- i.e., we need to do more with less); the precarious position of universities and nonprofit healthcare systems with huge endowments; and the urgent need to redefine, proactively, what we mean by "public benefit" (before government does it for us).

As the combustible (was I the only one in the audience who thought he might explode at any moment?) DiIulio put it, every nonprofit has to take seriously the need to explain and justify the "flow of benefits it provides back to the public." And even that might not be enough to save them from the taxman's scrutiny. Or, as the more measured Ford Bell, put it, "the value of nonprofits is not intuitive," and the sector will suffer if organizations don't do a better job of creating and disseminating narratives that explain that value.

In other words, change is coming, but maybe not the kind of change the sector was hoping for. We have to get in front of that change, not hide from it. And the place to start is by telling our stories as if our constituents' lives -- and our tax exemption -- depended on it.

Your thoughts?

-- Mitch Nauffts

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I can't help but think the major advocacy groups in the sector could be in for a surprise when they have to defend themselves against Democratic members of Congress. The economy could bring about a whole new political dynamic for those organizations.

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