Tag Archives: nonprofit budgets

Payments in Lieu of Taxes: Necessary Evil or Unfair Imposition?

Reposted from The Giving Institute Blog – May 23, 2012

Click HERE to download a PDF of this article. 

Today’s continued economic uncertainty has prompted bold actions by local governments as they struggle to secure necessary income while faced with substantial budget shortfalls, unpredictable tax revenues and critical services in dire need of funding. In this era of municipal belt-tightening, a rapidly growing number of local officials now look at previously untapped sources of revenue: nonprofit institutions.

Since Boston’s Mayor Thomas Menino first broached the issue several years ago, other communities – small, medium, and large – have followed suit and have turned to some of the country’s most significant nonprofits to augment the current tax base.

Image Source: http://american.com

This has become an unprecedented source of revenue as well as debate, especially as questions arise around the endowments and land holdings of some of the country’s largest nonprofits, with universities, museums, hospitals and other community resources being cajoled, negotiated with and sometimes even publicly assailed in the media.

This country’s 1.5 million nonprofit organizations represent and cater to a myriad of important causes and missions, and in return, they have traditionally received immunity from real estate taxes and other taxes through their federally-designated 501(c)(3) statuses. However, the notion that charitable institutions are off-limits to the tax collector has recently been cast off.

As a result, municipalities now see an opportunity to extract some much-needed revenue from nonprofit organizations. This phenomenon has been working its way across the U.S. under creatively phrased monikers such as “voluntary contributions” and “payments in lieu of taxes (PILOT).”

We first noticed the momentum towards acceptance of this new model about 15 months ago when we developed a then-controversial op-ed piece for the Giving Institute’s blog about PILOT.  Since then we have witnessed additional municipalities placing public pressures on their largest local nonprofit institutions. Most organizations are obliging, and only a few weeks ago a precedent-setting court decision undoubtedly propelled these controversial PILOT issues into the public arena.

The Mesivta Eitz Chaim of Bobov Inc. summer camp, located on 61 picturesque acres in Pike County, Pennsylvania, is operated by the Bobov Orthodox Jewish community in Brooklyn, New York. Between June and August, the camp provides classes and lectures on Orthodox Judaism as well as some recreational activities, though the camp is primarily designed as an educational institution.

Although the camp’s dining and recreational facilities are open to the public, camp representatives were unaware of neither Pike County residents using the facilities nor Pike County or Pennsylvania residents attending the camp.  As a nonprofit organization, the camp sought an exemption from real estate taxes, but Pike County and the local school district denied the camp’s request for an exemption based on the nature of the camp and its charitable status.

The Pennsylvania Supreme Court upheld two lower court rulings against the camp’s tax exemption. In order to receive an exemption, the Court held that a claimant must meet the definition of a “purely public charity” as measured in a 1985 Pennsylvania case (Hospital Utilization Project v. Commonwealth).

In Pennsylvania, an “institution of purely public charity” advances a charitable purpose, donates or renders gratuitously a substantial portion of its services, benefits a substantial and indefinite class of persons who are legitimate subjects of charity, relieves the government of some of its burden, and operates entirely free from private profit motive.

At issue in the case was whether the camp relieved the government of some burden, since the dining and recreation facilities were open to the public and the camp’s soccer fields, located outside of the camp’s gates, were used on occasion by the public. The Court affirmed that the occasional use of recreational facilities was insufficient to relieve Pike County’s government of some of its burden and made the camp’s property taxable.

This decision has the potential to be very important, especially in this challenging economic environment when many municipalities are cash-strapped. The implications from the point of view of the nonprofit are that local governments may look to charitable organizations as revenue sources. Furthermore, nonprofits that balk at payments in lieu of taxes may face a likely possibility that the municipality could challenge its nonprofit status, and possibly revoke it.

Here’s an overview of where PILOT programs are especially active:

Boston, Massachusetts

Boston has become the clear leader in implementing PILOT programs, collecting almost $17 million annually from a variety of cultural, educational and medical institutions, with annual payments ranging from a few hundred dollars from a VFW Post to millions from hospitals and universities. In 2010, 36 nonprofits provided “voluntary tax” payments to the city.

New guidelines promulgated by Mayor Menino’s PILOT Task Force increased the number of nonprofits asked to contribute and pushed nonprofit payments up by 24%. Boston University and other large landholders have “volunteered” payments for municipal services approximating 25% of what they would pay if they were a for-profit entity.

Chicago, Illinois

Chicago has slashed critical city services amounting to $417 million. Colleges, universities and hospitals are being approached, although organizations of all sizes are affected.

One prominent example is the 20-member nonprofit Austin Green Team. Since 1989, the Austin Green Team has maintained over one dozen gardens and two greenhouses in the Austin neighborhood on Chicago’s west side, providing beauty and a sense of serenity to more than 100,000 residents. Under the Mayor’s 2012 budget, the Austin Green Team’s water service fee waiver is proposed for revocation, threatening the viability and survival of the gardens. The proposed budget plan includes eliminating fee waivers for virtually every nonprofit organization in Chicago.

Worcester, Massachusetts

In 2011, Worcester Polytechnic Institute entered into a 25-year agreement with the city to annually fund $50,000 to maintain and improve a neighboring park. WPI had already been making annual PILOT contributions of $180,000, including a 2.5% increase built in annually over the next 25 years. WPI president Dennis Berkey described the payments as strengthening the quality of the relationship between the college and the city. WPI also received assurances from the city that for the next 25 years, no additional taxes would be levied on the institution. However, a more important aspect of the relationship was the positive publicity lauded on the school for its support of the city.

Syracuse, New York

In 2011, Syracuse University began making $500,000 annual payments on a 5-year, $2.5 million pledge to the city of Syracuse. Responding to the pleas from the financially strapped city, University officials agreed to be the first nonprofit in Syracuse to make a voluntary payment after the City Council began exploring taxing some aspects of the University’s newly expanded properties. According to City Council, even as the University further shifts the burden of municipal services away from taxpayers, “It’s time for the University to kick in a little more to support these services.”

Providence, Rhode Island

Due to unprecedented financial problems, the Mayor of Providence initiated a program designed to pursue tax exempt institutions for a “failure to sacrifice.” The natural target was the city’s largest landowner, Brown University, who since 1764, was “freed and exempted from all taxes.”

Recent negotiations have yielded voluntary payments from Brown in the amount of $31.5 million over 11 years. Brown owns 200 buildings in Providence valued at over $1 billion in total, and if taxed, would pay the city $38 million annually. As Providence Mayor Angel Taveras summed it up, “every organization, including tax-exempt institutions, must share part of the burden of saving our city.”

Even with a slowly advancing economic outlook, the landscape has changed and nonprofits are unlikely to continue to benefit from their open-ended special tax exemption. With this in mind, land-owning nonprofit organizations should consider the following:

  1. Be prepared. Charitable organizations should not assume that their nonprofit status creates blanket immunity from all taxation. Houses of worship, community centers of all types, camps and other agencies owning larger parcels of land may be targeted for voluntary payments.
  1. Budget now for PILOT. Nonprofits should plan on including PILOT payments that might represent “reasonable” contributions to the municipality and tailor their budgets and programming accordingly.
  1. Get out in front of the issue and use it to your advantage. Appearing as a “good citizen” is important to nonprofits, especially those that are large landowners. Tailoring the PILOT to garner positive PR can strengthen an organization’s community image as well as possibly enable special consideration from the municipality later on. Nonprofits of all sizes should expect governments to ask them to step forward and contribute voluntary payments or pay usage fees to cover municipal services, including fire and police protection and other services.

Twelve Insights About Giving in 2012

Reposted from eJewish Philanthropy – January 4, 2012

2011 has ended and, while true challenges remain, dire predictions of especially troubled times in the nonprofit world never seemed to materialize. What lies ahead for 2012? We predict another year of growth in philanthropy and another year for more giving.

As we look at our crystal ball for the coming year, however, we find certain predictions difficult to make. The never-ending roller coaster rides in the U.S. and world economies, compounded by an election year likely to impact on policies, taxes, and other factors that directly affect nonprofits and charitable giving, will continue to shake things up regularly. We certainly hope that an improving economic landscape may help push charitable giving to an even more positive direction but recovering from the Great Recession will not be easy.

One prediction about which we can be certain is the content of our bi-weekly contributions to eJewish Philanthropy. Here is a preview of what we will address:

  1. The Modern Jewish Woman Donor
    The evolution and new-found power of the MJWD are often overlooked. Studies confirm that women are increasingly influential in decisions relating to charitable giving and they routinely give better and more passionately than do men. While Judaism honors women, we will identify ways that women address philanthropy and why women are such good donors.
  2. Networking: The Key to our Giving Future
    Although we have written substantially in the past about the benefits of social networking, we cannot stress enough the importance of face-to-face contact between nonprofit leaders and potential donors in the Jewish community. We will look at approaches other than social media, largely because fundraising campaigns succeed as they cultivate and draw upon the strong sense of community and interpersonal relationships. Why do people give and what impacts on their decision-making? The interests and emotional connections of Jewish donors to the agencies/projects they support and the way that they support, are changing along with our Jewish communities, so giving patterns are likely to continue to change in the times ahead.
  3. Planned Giving
    While every gift is a planned gift, testamentary giving through wills, trusts and estates accounts for about $30 billion annually in the U.S. We will examine how donors can efficiently plan legacy gifts that ensure their charitable intent lives on after death. With a focus on our synagogues, we will question why we have seen a very slow development of “legacy programs.” How do we encourage deferred giving in the synagogue world, enabling them to catch up to other nonprofits that continuously advance in this arena? Why do Jewish congregations tend to shy away from talking with their members about estate gifts?
  4. Dressing Up Your Campaign
    Just in time for Purim, we will talk about changing the face of a nonprofit. Experts contend that rebranding should be done every 10-12 years. While people will dress up like their favorite Purim characters, nonprofit leaders need to consider serious questions relating to presenting their agencies as contemporary organizations with crisp and meaningful messages. What does your logo convey? How can we keep the stakeholders and potential contributors “on the same page?” We will examine the many ways to make your mission and vision stand out and reach the right audiences. While successful fundraising begins with a compelling story and good packaging, we will ask some experts to address what approaches have worked in the past and what may work even better in the future.
  5. What Donors are Really Thinking
    With personal tax deadlines front-and-center in April and with Passover approaching, we will talk with several philanthropists and ask a number of key questions that every nonprofit professional would like to know: how do they choose where to donate? How can a nonprofit get the attention of major donors? What are the “do’s and don’ts” when approaching a major philanthropist?
  6. The Ideal Development Director
    We are familiar with the fundamental roles of an organization’s development officer, “one who implements a strategic plan to raise funds for their organization in a cost-effective and time-efficient manner.” But what sets apart the successful ones from the others? Which ones survive in the tangled webs of annual campaigns, foundation research, grant-writing and stewardship of major donors? We will dive into what we believe are the characteristics of the most ideal development director.
  7. Engaging the Board
    We often wonder why so many people want to volunteer for a cause bigger than themselves. In so many JCC’s, Federations and synagogues, we hear board members discuss the importance of the Jewish community. Yet sometimes the message and direction from the organizational Boards are not always “in sync” with the organization’s mission and vision. This post will examine the role of governance, leadership and strategy.
  8. The Results and Trends in Giving in 2011
    In June, The Giving Institute will confirm the annual figures on the levels of philanthropy during 2011. The annual report will include key facts and analyses of the 2011 numbers and we will use the report to highlight innovations that Jewish organizations are taking to enhance philanthropy.
  9. A Jewish Look at Foundations
    An essential principle in nonprofit work is that operational costs are limited but programs are limitless. Our goal in this article is to consider how important foundations and donor advised funds (DAVs) can serve the nonprofit world. While some critics contend that these funds are warehouses for dollars, we contend that Jewish donors are especially good at securing the future through their strategic decisions and that their intentions live on beyond their years.
  10. The Anatomy of a Synagogue
    As we approach the High Holidays, we will look at American synagogues and how they are addressing fundraising in new and effective ways. But are our congregations truly transparent and are they being operated as well as other types of nonprofits? Although we will not identify any one specific congregation, we will offer some insights on how a modern synagogue might and should operate in 2012.
  11. Jewish Volunteer and Professional Leadership
    Strengthening and fostering volunteer leadership has taken on a new emphasis, but salary studies of nonprofit executives seem to favor men over women. What are the profiles of both volunteers and paid executives and how are they impacting philanthropy? We will focus on some provocative findings.
  12. A Light Unto the Nations
    Israel-focused philanthropic support by Americans is changing, especially as research validates that younger Jewish donors look at Israel differently than did their parents and grandparents. How should Israel-based agencies actively seeking charitable support in the U.S. adjust their efforts to be more successful and relevant? As we consider social media efforts such as Facebook and Twitter and other types of technological methods to secure funds and build support, we will talk with some Millennial donors who are truly making an impact.

Because the Jewish philanthropic world is constantly evolving, we will sprinkle other topics into our bi-weekly contributions. We hope that 2012 brings growth, stability and strength to every Jewish organization. We are honored to offer our knowledge to thousands who subscribe to eJewish Philanthropy and always welcome comments, questions and suggestions.

Jews and Donor Advised Funds: A Popular Vehicle

Reposted from eJewish Philanthropy – December 15, 2011

Although available for at least several decades, Donor Advised Funds (DAF) are generally considered a contemporary giving methodology for many philanthropically-focused donors today. As we approach year-end giving we wondered if Jewish donors were adequately taking advantage of the option. A survey of several organizations featuring DAF’s suggests that 2011 will be another record year for creating new DAF’s and where additional assets are contributed into existing DAF’s.

Attracting some attention recently from cynics as well as the Internal Revenue Service (IRS) because of the belief that some people are using DAF’s as a personal bank account where they receive charitable tax deductions but are not especially philanthropically active, DAF’s are generally available for almost all donors who are seeking assistance in making intelligent, well-reasoned charitable choices. Those who criticize DAF’s – along with foundations – charge that the assets of these funds serve as warehouses for dollars and slow down the pace of charitable giving … primarily for momentary tax benefits.

Today, DAF’s are among the fastest growing and most flexible option for many savvy philanthropists. With an annual distribution rate of 17.1% in 2010, four times higher than that from foundations, DAF’s enable donors to receive assistance in making wise giving decisions at a very low cost for services and at low “entry points.”

DAF’s allow an individual (or a family) to create a special tax-deductible account through which charitable gifts can be suggested. Depending on the sponsoring organization, minimum amounts range from $5,000 to $25,000, significantly lower than creating a foundation or a supporting organization. The sponsoring organization that administers DAF’s retains legal controls over the dollars and handles the investment of funds contributed. But DAF’s do exist to serve as a conduit to guide support for legitimate nonprofits, a process done by careful management, integrative research tools and professional advice. Contributors to DAF’s request distributions from their funds and a decision-making group that oversees the funds they manage on behalf of a large pool of donors ultimately makes the decisions.

Those who create and give to DAF’s see many advantages:

  • An immediate tax deduction, up to 50% of adjusted gross income for cash or 30% for appreciated assets;
  • Using many types of assets – in addition to cash and appreciated securities – to distribute gifts to nonprofits;
  • Donors can identify successors to continue family involvement and philanthropic commitment;
  • They are Inclusive of most types of nonprofits;
  • Allow for a diversified investment to help grow giving capacity.

While there are estimated 152,000 DAF accounts across the US, representing over $25 billion in assets, we wondered about the presence of DAF’s involving Jewish donors. Probably the largest sponsoring organization for DAF’s is the Fidelity Charitable Gift Fund, an arm of the Fidelity Family of investment funds. They have set much of the methodologies that other organizations follow today, effectively managing nearly 20% of all DAF’s in the US.

The largest Jewish DAF is the Jewish Communal Fund in New York, with $1 billion under management.

In our review, we reached out to a few Jewish DAF experts to determine what they are seeing in 2011 and what their projections may be for 2012. Each represents hands-on work with Jewish donors and has years of experience in the DAF arena. We spoke with Sharon Lindsey, associate director for planned giving and endowments at the Jewish Federation of Palm Beach (Florida), Eileen Heisman, CEO of the National Philanthropic Trust (NPT) in Jenkintown, Pennsylvania, and Laura Linder, Executive Director of The Jewish Foundation of Memphis.

Each of these professionals agreed about the simplicity and streamlining process of DAF’s. Although their views on the general concepts and ease of DAF’s were consistent, their execution varied. Ms. Lindsey focused on the ease of contemporary tools available to facilitate making decisions and enabling donors to add to their DAF’s. At the Palm Beach Federation, donors are able to access online research in helping them reach decisions on which nonprofits to support. She emphasized that the federation is really hoping to assist younger donors, many of whom may not have experience in giving. The Palm Beach Federation allows for DAF’s to begin at $5,000 and they have more than 200 accounts today. Assets are growing, she notes, and she is working actively to reach out to more who wish to create DAF’s.

At National Philanthropic Trust, where Eileen Heisman serves as president and CEO, creating a DAF requires an initial investment of $25,000. “DAF’s can be a value because of the anonymity of giving but it’s also a way to foster multi-generations of donors,” she said. NPT has more than 2,500 DAF’s under management, with 15% of them “probably” Jewish donors. Assets raised by NPT since 1996 amount to more than $2.6 billion. Parenthetically, she observed that a number of Jewish donors have identified stem cell research in Israel as a prominent cause they support generously.

In Memphis at the Jewish Foundation, which has no direct affiliation with the local Jewish federation but where contributions to new or existing DAF’s is up at least 6% over 2010 and are on track to exceed $3.6 million, Laura Linder echoed similar sentiments about fostering multi-generational approaches to philanthropy. Her agency manages 250 DAF’s, with 25 representing three generations of families working together to make “intelligent and well-reasoned charitable decisions.”

Each of the three experts focused on organizations their donors are supporting, especially in the Jewish community. Ms. Linder estimated that 80% of the organizations receiving dollars from the DAF’s they oversee are Jewish local, national or Israel-focused nonprofits. “Although the majority of our grant dollars support Jewish organizations, our donors – the majority of whom are Jewish and most of whom live in or near Memphis – also support the whole community and regularly recommend grants to be directed to non-Jewish agencies.” But her focus is creating dynamic programs to emphasize Jews making gifts, especially to Jewish projects. They have created easy “entry points for younger Jews, and today 150 teenagers who wish to enter into the world of grant-making need only a minimum of only $250 to create a special DAF. The Foundation has secured an anonymous donor who then matches that total to start the account at $500. It is a good lesson in tzedakah, our approach stimulates giving by younger donors, and hopefully develops good habits for the future,” she says.

One of the advantages of creating a DAF is the ability to choose the growth risk for the assets of the specific account. Very similar to retirement planning, advisors suggest different levels based on how much a donor intends to contribute and how frequently contributions will likely be made. At the Palm Beach federation, Ms. Lindsey noted that the most popular path of risk is their long-term Investment Pool, which offers a broad diversification and is designed to support annual distributions of five percent. Offering some flexibility, the Palm Beach Federation – like almost all other DAF management operations – enables donors to transfer assets between and among various investment funds.

Not all donors use cash or appreciated securities to create and add to their DAF assets. Ms. Linder spoke about an individual who recently added to her longstanding DAF by contributing a piece of Tiffany glass. On behalf of the donor, the Foundation handled all details relating to auctioning off the valuable piece, the proceeds went directly into her account and the donor received a handsome current tax deduction. More importantly, the donor had great ease of receiving more dollars easily to distribute to desired charities.

There are very few disadvantages today to creating and utilizing DAF’s but the three women we contacted all agreed that DAF’s are not useful if donors intend to make a one-time gift or if they do not want to limit their controls on charitable gifts because once they add dollars to a DAF they can only request or recommend where charitable gifts can go since the sponsoring organization manages all decisions. Gifts can only be directed to IRS approved nonprofits, an important part of restrictions. And while it seldom happens, donors cannot withdraw monies for personal benefits nor can dollars benefit personal projects outside of nonprofits.

Jewish Nonprofits and Giving

Reposted from eJewish Philanthropy – December 6, 2011

For more than two decades, we have had the privilege of working with hundreds of nonprofits across the globe. Throughout our close partnership with these organizations, we have learned that the public images of organizations may vary from the perceptions that donors and others may hold. Let’s acknowledge that perception and reality may often be different but that they do have relevance in today’s over-communicated world, especially as changes take place in the Jewish nonprofit marketplace. Consider six myths that may impact many nonprofits:

Myth 1
Nonprofits must generate revenue that exceeds income.

This myth is true. Like any viable enterprise, nonprofits – Jewish and otherwise – ultimately seek to bring in more money than they spend as a general good rule of practice. While the overarching goal of a nonprofit is to utilize funds that they collect to provide specific charitable services according to their mission, a realistic business plan needs to guide current and future decision making … based on realistic projections and the marketplace. Creating reserves as mandated by best practices and the actions of their Board will guarantee sustainability for the agency in years ahead.

Myth 2 
Nonprofits are established as charitable organizations, benefitting from tax relief, receiving special handling to qualify for philanthropic support, and serving important services to the community.

This is true. Surely there are many nonprofits that dedicate themselves to elevating noble causes but there are many classifications of nonprofits that utilize various governmental privileges to be tax exempt. This privilege is bestowed upon houses of worship, arts and cultural entities, fraternal beneficiary societies, educational institutions and social service providers. There is no doubt that these organizations seek donations as nonprofits, and contributors and funders can and will be entitled to tax benefits based on the nature of the organization and its classification under the IRS code and local jurisdictions.

Myth 3 
Nonprofit work is not challenging.

This is not true. In a way, nonprofit work contains more challenges than many other sectors of the economy. NPOs strain to achieve difficult missions, often with limited money and human resources. The business models of many nonprofits include the involvement of volunteers and other creative solutions to function, to promote their services and to serve their communities. It requires a certain temperament, passion and character to work for a nonprofit and to sustain its operations. Over 10% of all Americans work for a nonprofit and over 80% of US nonprofits operate with annual budgets under $1,000,000.

Myth 4 
Synagogues are considered nonprofits.

True. There are nearly 3,700 synagogues in the US and they classify as nonprofit. While most states and the federal government do not require houses of worship to file as 501C3 organizations, they do receive special treatment as tax exempt entities. Because we work with so many Jewish congregations, we recommend that congregations apply for and secure 501C3 status, thereby allowing synagogues to receive formal tax exemption benefits … both for the institutions as well as for their donors/congregants. Synagogues are not required to file an IRS form 990, a document that outlines an organization’s annual financial record and seeks to ensure transparent operations. According to the Union for Reform Judaism URJ), the central organization of the Reform Movement, membership dues count for roughly 68% of a congregation’s revenue, with the balance of the dollars coming from other means; in most cases that includes fundraising. Congregational members usually claim dues and other related expenses as legitimate tax dedications. Note that Giving USA reports that more than one-third of all charitable giving in the US is directed to religion, including dues and other support for churches and synagogues.

Myth 5 
Jews support Jewish organizations and Israel unconditionally.

False! Our firm recently prepared and released the second in a series of landmark reports outlining the scope of giving to Israel focused non-profits between 2006 and 2009. Among the observations we noted was that Israeli organizations are no longer seen in the same ways that they once were, reflecting that Israel is not an experiment but an important country on the international scene. Jewish federations and other traditional organizations associated with the Jewish nonprofit world are required to take new approaches to securing support and they are also changing their approaches, especially as Millenials (adults under 35 years of age) are coming onto the charitable scene.

Myth 6 
Jewish donors give more generously than those of other faiths.

Generally speaking this can be true, based on various reports. Jews number only about 2% of the overall US population. Therefore, the comparative giving number is not measurable to other religions. But per-capita, Jews seem to give as much if not more than those with other religious leanings. According to The Chronicle of Philanthropy, 19 of the top 53 donors in America are Jewish, including five of the top six donors in America (George Soros, Michael Bloomberg, Irwin and Joan Jacobs, Eli and Edythe Broad and Leonard Blavatnik). We should point out that this does not necessarily mean they support only Jewish causes. The Bible mandates tithing, whereby at least ten percent of one’s income goes for charity. Most American Jews seem to have abandoned that concept today. Mormons, on the other hand, generally give significantly to the Church of Latter Day Saints (LDS) as well as other causes they hold dear. As a result, Utah, with a large Mormon population, ranks as the most generous state today in terms of per capita giving.

Nonprofit organizations have very practical initiatives but benefit from important societal values and laws that allow them to operate with fewer tax restraints than for-profit organizations. But not all nonprofits are the same. While most are honest and law abiding, there are some which try to disguise themselves as legitimate to gain entry into the system. As a result of important oversight by various governmental agencies, many have lost their nonprofit status. (We wrote about this in June 2011 on eJewish Philanthropy: “IRS Targets 1534 Jewish Nonprofits.”) Most of the disallowed NPOs were very small and failed to report their finances properly … and a few did violate the trusts to donors about the work they provided or the services they performed.

Depending on Government Funding: Impacting Your Nonprofit Organization?

Visitors to the EHL Consulting’s web site in November spoke out about depending on government dollars.  What do we recommend?

Certain types of nonprofit organizations believe that they cannot survive on fees and charitable support alone. Albeit they may be the financial lifeline but there are other resources to consider.  Although no two organizations are exactly alike, many depend on different types of government funding to help finance an organization’s programs. Even during difficult financial times, we note that over $500 billion in federal grants are made available annually. Receiving consideration requires basic research and then active filing.

There are advantages and hurdles associated with seeking and receiving federal, state, or local government funding. The obvious advantage is supplemental funding for needed causes. Often government funds are perpetual and agencies become dependent on these monies. The disadvantage of the funding can often be various political motivations. Both Democrats and Republicans have social causes that they favor or not and these motivations can sometimes affect federally funded programs. This may have been one of the factors that prompted almost one-third of our web site survey respondents in November to acknowledge a decrease in governmental funding in 2011.

Another issue is timing. Governmental allocations are not necessarily synchronized with the fiscal calendars of every organization. Funding cycles can vary from year-to-year, too. For example, a nonprofit organization could be in the need for the funding of a special screening or a periodic program; thus questions arise regarding whether the allocations should happen each year or in other timeframes. Much depends on the accounting controls set forth by the organization as well as the proposals submitted to request funding.

Government favors nonprofits that serve social and health-related services but arts and cultural institutions are also likely to qualify, too. There are new barriers with some federal funding. Just two years ago, the government reduced funding to nonprofits that have CEOS that earn more than $500,000. The thought process is that government dollars are being funneled into programs as opposed to administrative costs.

Our advice in the times of the “new normal” is to  position your nonprofit to survive on charitable support, fees and reputable programs because government dollars will become even more unlikely, more difficult to secure, and be paired with restrictions that may be almost crippling.  If fortunate enough to procure a government grant, try to use it as an enhancement for organization purposes that will not be in jeopardy once government dollars vanish