If you have been reading my blog over the past few months, you should have picked up that I am not a fan of basing too much of your organization’s annual budget on government support, whether it is at the local, state, or Federal level. I know from personal experience as a Board member at a social service agency years ago that it can have dire consequences.
In past posts, I have mentioned some of the horror stories told by nonprofit agencies that fell into the trap of too much state funding. During the tenure of Governor Rod “Golden” Blagojevich, the Illinois legislature increased spending money it didn’t have on contracts for social services with nonprofit agencies in the state. Now, the state is obligated to pay for those services, but doesn’t have the money to pay for them. It is billions behind on payments, and nonprofits are having to wait for months at a time to be compensated. Local papers have run a series of articles called “Deadbeat Illinois” chronicling the devastating effects of this situation.
A couple of weeks ago, Illinois State Comptroller Judy Baar Topinka came to Rockford University to address nonprofit professionals about this subject. I attended the talk because of my interest in this situation, but surprisingly, it was not well attended by as many nonprofit executives as I expected. When I asked some of those who attended how much of their budgets came from the state, I got answers ranging from 60 – 100%.
According to Ms. Topinka, the problem was alleviated briefly when taxes came in April, lowering the amount owed from over 9 billion to 6.1 billion, but now the total has risen again, and it is expected to be back over 9 billion by December. The Comptroller was quite frank. She stated that the legislature must stop spending more than comes in, but this year the legislature increased the budget again.
Deficit spending on nonprofit agencies is not just an issue of Illinois. Last week, James Piereson, a fellow at the Manhattan Institute, wrote an opinion piece for the Wall Street Journal about Federal spending on the nonprofit sector. According to his article, government spending on nonprofits has grown from $100 billion a year in 1962 to an astounding $3.6 trillion in 2012. Many of the organizations who benefit from this government largesse have lobbyists in Washington who prod Congress for higher spending, yet at the same time, they complain about capping the charitable tax deduction. The problem is, if your budget is so dependent on government funding and not donors, you really do not fit the definition of a charity.
If you follow the news and hear stories about cities like Detroit going bankrupt, states like Illinois not paying their bills in a timely manner, and the Federal government battling multi-trillion dollar deficits, your organization needs to rethink its funding and support. If you are going to base your budget heavily on government spending, be prepared to lose your charitable status, because you are no longer a charity. If you choose to go back to the meaning of charity and base your budget on gifts from individuals, businesses, and foundations, then prepare to fight tooth and nail to maintain the charitable deduction.