The first few months of 2011 have not been good ones for the nonprofit sector in Hawaii. As part of his call for tax reform in the State of the Union address, President Barack Obama proposed lowering the charitable deduction for itemizers by more than half. And in his State of the State address, our governor announced cuts in social services, starting with the elimination of millions of dollars in contracts to some 41 nonprofit agencies from the Department of Human Services.
The budget before Congress proposes to slash funding in half for the community development block grant program that supports community groups in poor neighborhoods. And our Legislature is considering eliminating exemptions from taxation for nonprofit organizations.
No wonder most nonprofits hope that they are watching the movie "Groundhog Day" and wishing they will wake up to find a new day with none of the storm clouds on the horizon. Not likely.
What is clear, and rightfully so, is that there are no sacred cows left in our federal, state and county governments’ scramble to balance their budgets. As Gov. Neil Abercrombie has put it, we will all need to sacrifice to make it work. Certainly, the conversation needs to consider what services are essential to our community and how best to deliver them, regardless of the impact on any given nonprofit organization. But there are several unique characteristics about our nonprofit sector that are worth bearing in mind.
By definition, our nonprofit entities tend to provide services that would not otherwise exist. If those programs could be provided on a profitable basis, we would see the private sector fill that niche. And as government continues to shrink services, remote communities or programs that serve a small or discrete population will not receive the same level of government services.
Effective nonprofit programs are a social equalizer in that sense, often combining government funds with subsidies from charitable dollars raised from private sources to serve the most vulnerable among us.
Further, the demand for nonprofit programs is out of cycle with our economy. When times are tough, people seek out assistance for food, shelter, counseling services and job training.
In addition, our nonprofit sector is not just a significant part of our labor force (about 8 percent in 2005), but almost all of its spending recycles through our local economy because the bulk of its expenses are in the hiring of local people and vendors. Cuts to this sector are a triple whammy: eliminating services, increasing demand for government assistance from displaced workers and lowering the multiplier effect to our economy from the dollars spent by the sector.
The impact of these contemplated cuts or taxes cannot be mitigated by charitable dollars. While Hawaii residents are among the most generous in the country, charitable dollars coupled with foundation and corporate giving represents substantially less than half of the total revenue for the sector. Simply put, government action trumps generosity.
The discussion that ensues need not lead to a heated debate. Our government leaders, within administrations and our elected bodies, have a difficult and unenviable task. What is needed is a respectful dialogue that fashions a rational approach to how and what is done. Nonprofit organizations will need to come to grips that not all missions are created equal in a time like this and, in addition, that programs with compelling evidence of effectiveness, savings to the public or external matching funds will take precedence.
Our government leaders need to take a measured and selective approach. Not all organizations are alike, and they should not be subject to across-the-board cuts or taxes that do not distinguish between them. Such actions could result in the unintended consequence of pushing incredibly important organizations over the edge into insolvency and dissolution.
Finally, it is time for nonprofit organizations to recognize the need for consolidation and collaboration. Too many organizations continue to work under less than ideal conditions with mediocre results when partnerships could lead to more effective and sustainable outcomes.