Friday, January 19, 2018

Time to Change Nonprofits' Game Plan

It's NFL football playoff season and that brings to mind the situation now facing nonprofits with the newly enacted federal tax overhaul bill.  When a quarterback breaking out of the huddle comes to the line of scrimmage and sees the situation has changed since he fixed the play, he calls out an
"audible," which informs his team of necessary last minute adjustments. In the same way, nonprofits must now quickly change their game plan.

The recent legislation is potentially very injurious to nonprofits. Although the tax deduction for charitable giving remains, the incentives to do so are constricted by the redesign of the deductibility architecture. The doubling of the standard deduction (now for a single person $12,000, a couple  $24,000) makes it unnecessary for  many taxpayers in the middle income ranges to itemize deductions. Before, itemization of charitable gifts as tax deductible was believed to encourage such donations. Similarly for the very wealthy the prospect of a hefty estate tax made present day donations attractive to some. That tax was virtually eliminated in the legislation.

On top of all this, nonprofit leaders are worried about the inevitable upcoming battles over federal spending made more acute by the looming budget deficits. If, as widely predicted, the Republican leadership will use the budget shortfalls as an excuse to attack the social safety net/entitlements (Medicaid, Medicare, etc. ) long a favorite target of the Right. As these are cut, the pressure on social service nonprofits to make up the difference becomes acute.

So the quarterbacks for the charitable community come to the line of scrimmage and see the landscape has changed radically. Time for an audible. First, the issues must be faced head on.  Will donors reduce giving because of the changes to deductibility? Do  donors know what the changes are and how they might be affected? To the extent that nonprofits  have had a hands-off relationship with  donors except for year-end asking for money, this attitude needs to change. Perhaps organizations should collaborate in presenting a seminar for donors led by accountants and financial advisors on tax law changes. Then enter into a dialogue with donors. How important actually is deductibility to them?

If it is an important  factor, then provide a counterweight to that rationale. Logically that should be an increased emphasis on communicating your mission - what service do you provide the community? What return do you provide on the donated dollar? The effectiveness of those messages depends on building a strong relationship with the donor. If it is weak, strengthening that bond should be a goal embarked on now. I am not sure tax deductibility is the principal impetus to philanthropy but it is important to ascertain how important it is has been in your organization and build powerful alternative reasons for support. 

As for the other threat - budget cutbacks- relationship is once again the key, here with elected representatives at all levels of government. There is consensus that the nonprofit community dropped the ball (to continue my football analogy) in the recent tax bill fracas.  The advocates relied too much on assumption that previous support from legislators would continue without factoring in the speed in which the bill was fashioned and the changes in political climate. It relied too much on the old formulas - for instance the mass "advocacy day" assault on Capital Hill. In November 2012 I wrote a blog post called "Getting the Dog Back" about political persuasion. It still makes sense to me. Here it is:

If "trickle-down" was a buzzword for adherents of the tax changes, then their effect on state and local governments, along with impending federal budget cuts, would resemble more of a mudslide. In the offing might be additional fees, payment in lieu of taxes on nonprofit real estate and overall reconfiguration of  state and local tax laws. So building relationships with state and local officials  has to be part of the advocacy/firewall  mix. If you review the backgrounds of federal legislators many of them came up through the local and state elected ranks. A county commission can do as much damage - or good - to a nonprofit as any federal legislature.

So, nonprofit quarterbacks, signal the necessary changes to the game plan. Position your blockers, align your receivers to catch your brilliant initiatives and most of all, know the players, both defensive and offensive. It's early in the game. But don't wait until the last quarter to act!

Comments on this blog post (#68) and any other found in the archive to the left are always welcome at: