About Bob Bob serves as President and CEO of GuideStar and serves on the boards of Vision TV, Grameen Foundation USA, and the AAFRC Trust for Philanthropy. More...
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Posted By Bob Ottenhoff on March 9th, 2012, in these categories: Government | Nonprofit PracticeThe Associated Press reported on Thursday that many within the tea party, as well as other conservative groups, are claiming that the Internal Revenue Service is taking too long to award them tax-exempt status.
I say good work IRS. Take as long as you need and be very, very cautious and demanding before you award any more 501(c) (4) exemptions.
These most recent complaints are coming from those who claim the IRS is “purposely frustrating” their efforts to gain 501(c)(4) status as “social welfare” groups whose “mission is to promote the common good.” Lots of nonprofit organizations have a (c)(4) or operate as one and engage in some effort to influence political activity. It’s the extent of that political activity and whether they are indeed political parties and not just occasional political advocates providing information that is at issue here.
 Beverly & Pack/Flickr I’m sure that part of the reason for the caution of the IRS is the rise of the Super PACS that are exercising so much influence currently in the Republican primaries and are gearing up for the fall. In the days before Citizens United, political action committees (PACs) were limited to $5,000 contributions and could pass the money directly to whatever party or candidate they chose. The new Super PACS can raise unlimited amounts of money from corporations, individuals and labor unions, but they must be independent of the candidates, even though they’re usually run by friends or associates of the candidates. Like the old PACS, Super PACS are required to make the names of their donors public – although it can sometimes be months after the donation has actually been made. However, donors to 501(c)(4)s are not required to be made public. Increasingly we’re starting to see donations flow from the (c)(4)s to the Super PACS, thereby avoiding disclosure. After all, why disclose a donor’s name when you can avoid it by making the donation through a (c)(4)?
This is not a Republican or Democrat issue. Both parties are getting into the Super PAC game full time. I’m one of those who believe that all this money pouring into politics is not good for our fragile democracy. It‘s going to take a while to figure out what can be done, if anything, to slow down the money train. In the meantime, I would encourage the IRS to be rigorous in not only awarding new (c)(4)s but to keep a closer eye over existing (c)(4)s to make sure they are complying with IRS regulations. Secondly, I’d like to see the IRS change the regulations and begin requiring full disclosure of all donors to (c)(4)s. That seems to the bare minimum when it comes to showing transparency and accountability.
I realize these recommendations run the risk of getting thousands of small Rotary clubs, volunteer fire departments, veterans organizations, etc., caught in the net when new regulations are imposed on (c)(4)s . Absent a restructuring of what it even means to be a (c)(4), this may be the price we have to pay for closing this enormous loophole.
If you have responsibility for running a nonprofit organization, you should care about this issue. All this political activity and money flow in the name of a “nonprofit organization” further confuses the public about just what it means to be a nonprofit organization. Is it merely a designation for avoiding taxes and hiding from public inspection, or do we stand on principles about how we serve the public good?
Posted By Bob Ottenhoff on March 31st, 2011, in these categories: Economy | Government | GuideStar | GuideStar.orgIt’s time for executives of high performing organizations to begin thinking about what the new economic normal will mean for them. Too many nonprofits are operating off of business models created in the 1960’s. Those models had several components that are no longer sustainable. For starters, after non-stop growth in total donations, the nonprofit sector experienced a significant dip in 2009 (Giving USA) and I wouldn’t be surprised if we saw a further decline in 2010. At the very least, growth will be much slower in the years ahead than it has been in previous decades. At the same time, investment income has declined to historically low levels affecting foundation endowments and organizational endowments alike. Finally, there is the nonprofit sector’s traditional dependence on government grants and contracts, for nearly a third of total revenue. This is a source already in decline and likely to plummet before it stabilizes.
Here in Washington the federal budget news gets crazier every day. We are now operating the federal government in increments of several weeks at a time. Forgot about long range plans and strategy – a month is now an eternity. And the fight is about our current fiscal year, the one ending September 30! Still to come are debates over next year’s budget and all the big structural issues.
Our government budget problems are way too big for anyone or organization to think they won’t be adversely affected in some way. At least that’s the way I hope it happens -spreading the pain around to everyone -not just to those without PACS and lobbyists.
This includes nonprofits. For starters, we should expect some changes in the tax deductibility standards. Expect many government service fees to nonprofits to continue to be under stress or eliminated altogether.
Tim Delaney, President of the National Council of Nonprofits, has an excellent paper published in the Nonprofit Quarterly http://www.councilofnonprofits.org/news/national-council-news/tim-delaney-state-threats-nonprofits, detailing the pounding nonprofits are taking from government. He reports that governments are abusing contract relationships with nonprofits by not paying full cost of work, changing contracts in mid-stream, paying late or not at all, adding unnecessary complexities, and adding new fees. He’s been urging nonprofits to fight back – with lobbying, advocacy, and the tough tactics applied in the business world, and not take it any more.
But in a recent presentation at the Bradley Center, Gene Steurle, a wise veteran tax analyst, who has an excellent blog called The Government We Deserve, reminded us that currently the federal government is spending $31, 000 for every American each year and bringing in only $19,000 in revenue – not counting various tax deductions and loopholes. This is a path he suggests that will undermine our country’s security and not something we can avoid any longer. In 2009, for the first time in American history, he said, every dollar in the federal budget was committed before the fiscal year even began – thereby required elected officials to cut the budget or add to the deficit if they wanted to add any additional spending. Our only way out of this mess he suggested is to raise taxes, cut spending, and limit deductions and loop holes. Nonprofits are going to need to share in this sacrifice.
We’re about to enter a period of a “giant re-set” – a phrase first used by the National Governor’s Association.
What should leaders of high performing organization’s be doing?
- For starters, get involved. We are about to enter a period of debate about reallocating how we spend our federal and state government resources. We need to be fighting for solutions that preserve desperately needed public services and invest in our collective future. Expect those with other approaches to be fighting too.
- Take a serious look at your organization’s business model. Are you taking steps to diversify your revenue streams? And are you being honest with yourself about the long term picture for your current plan?
- Think big. You’ve probably already done the easy belt tightening over the last few years in order to respond to the Great Recession. What’s to come may be even worse for some nonprofits. A friend of mine running a state association is facing a total zeroing out of his state support – a third of his revenue – and is now exploring a regional approach to back office functions. He’s thinking big. Today’s challenge could in fact end up being liberating – freeing us to think about our organizations and resources in brand new ways.
Posted By Bob Ottenhoff on March 14th, 2011, in these categories: Economy | General | Government | GuideStarWe’ve learned a lot over the last month about the power of social media to bring down tyrants and corrupt governments in Tunisia and Egypt and mobilize people in Yemen, Libya, Bahrain, Iraq, Algeria, Morocco, Jordan and Oman. It’s been thrilling to watch how Facebook and Twitter, in particular, have helped to encourage thousands of people to take action.
But these social movements have been essentially leaderless. Years of political repression has pretty much stamped out any meaningful civil society in these countries.
So what happens now? How does social media help build civil societies and democratic governments? I don’t have an answer, but it’s going to be a lot harder for social media alone to actually build institutions. I can see it playing a role in mobilizing people to vote or assessing public opinion. But who will play the role of writing laws, creating institutions, and developing political parties? It seems to me that will still need to be done the time-tested, old-fashioned way with people sitting in a room and hashing out the details.
The U.S. government seems to be pondering this question too. This Sunday’s POST (March 6) reported that the U.S. will spend about $250 million this year in Egypt for economic assistance, job training and education, health and pro-democracy assistance. I assume other efforts are under way in other mid-east countries, although not at this level.
At the recent Tech Soup Global conference I learned about another government effort from Noel Dickover , who works for the U.S. State Department where he leads an effort called “ediplomacy Civil Society 2.0.” The Project is discussed by Fast Company here: http://www.fastcompany.com/1703889/state-department-convenes-tech-conference-for-ngos-in-latin-america. Here is a little bit from the State Department web site: http://tech.state.gov/profiles/blogs/what-is-civil-society-20.
At the Tech Soup conference, I also spent some time with Beth Kantor. In her blog she writes about her recent visit to Beruit participating in a program to teach social media skills and help empower individuals to build more participatory and pluralistic societies.
It’s good to know these efforts are underway. But my central concern remains: can social media be as effective building new institutions as it is in tearing down old corrupt ones?
I’d like to hear your thoughts.
Posted By Bob Ottenhoff on December 30th, 2010, in these categories: Economy | Fundraising | Government | GuideStar | Nonprofit PracticeI spent some time yesterday preparing for an upcoming radio interview on nonprofit trends for 2011 with Lindsay Nichols of the GuideStar team. We identified three big issues that we think we will influence much of what goes on in the nonprofit sector in the year ahead:
- The economy: GuideStar released a report in late November that suggests that the free fall from the Great Recession is over, but the recovery is still uneven – with
 the speed and extent of the recovery depending on the geographic location, size, and type of the organization. Meanwhile, demand for nonprofit services, particularly vital social services, continues to increase.
- State and federal government financial issues: I recently wrote a blog about how nonprofits are being affected by drastic budget cutbacks in government budgets. Since then there have been a number of frightening reports predicting we could see a number of government bankruptcies this year. With government being the largest source of nonprofit revenue, this situation could get a whole lot worse before it gets better.
- Technology: No surprise to those working in the nonprofit sector: technology continues to change, modify and transform how we raise and donate charitable contributions. Network for Good recently published a new study about just how vital online and mobile giving has been to the nonprofit sector lately, with particular success seen after disasters such as Haiti or 9/11. At the same time, Apple has denied nonprofits to accept donations via their apps, which is causing some major discussion in the field. I recently blogged about this topic as well: http://ceo.guidestar.org/2010/12/15/apple-has-it-partly-right-nonprofits-should-be-vetted/.
Aside from these three major environmental trends, there are two other issues slowly evolving that could end up having a huge impact on the sector in 2011:
- IRS tax-exempt status revocations: As a result of the Pension Protection Act of 2006, there are about 400,000 nonprofits in danger of losing their tax-exempt status because they have failed to file annual returns with the Internal Revenue Service (IRS) for fiscal years 2007, 2008, and 2009. GuideStar has distributed multiple press releases about it, the latest in October. This will be a HUGE game-changer in 2011.
- Tax implications: Bloomberg Businessweek recently interviewed Dan Moore, GuideStar’s Vice President of Nonprofit Programs, as part of a story on how estate tax changes may affect charitable giving. In addition, when President Obama and Congress begin tackling the federal government deficit next month, look for the charitable deduction to be up for serious debate. Both of these two tax issues could have a major impact on how and when people donate to charity.
It will, as always, be an interesting year!
Posted By Bob Ottenhoff on December 13th, 2010, in these categories: Government | GuideStar | Nonprofit PracticePOLITICO reported in its December 3 edition that the Obama administration has poured millions into faith-based groups.
According to the report:
The story of the Obama administration’s large-scale spending on faith-based groups has been largely untold, perhaps because it cuts so sharply across the moment’s intensely partisan narrative. And in fact, when the stimulus was being debated in February 2009, conservatives attacked the bill as “anti-religious” in its spending guidelines.
But an analysis by POLITICO found that at least $140 million in stimulus money has gone to faith-based groups, the result of an unpublicized White House decision to spend government money, where legal, supporting religiously inspired nonprofit groups. And that decision was just the beginning.
In an aggressive attempt at outreach, federal agencies, in conference calls and online seminars, instructed faith-based groups on how to apply for the grants, and federal officials sometimes stepped in when the state officials who distribute the money were reluctant to spend it on groups associated with churches and other religious establishments.
POLITICO searched the federal database at Recovery.gov for grants to faith-based groups and found a wide range of grants going to an array of denominations. Catholic groups, receiving about $90 million, were the largest; Protestant groups received at least $45 million; and Jewish groups received at least $6 million.
Groups associated with other faiths got substantially less. One Muslim charity in Chicago, the Inner City Muslim Action Network, received $277,000 for a green jobs program through the Department of Housing and Urban Development.
Much of the money went to fund the secular activities of religious institutions like schools and charitable organizations. Department of Education and Department of Agriculture grants went mostly to schools — Head Start programs, school lunch programs and other education-related programs.
Charities and social services organizations received funding through the Departments of Housing and Urban Development, Health and Human Services, Homeland Security and Justice. And the Department of Energy administered a number of energy-efficiency programs that some religious institutions qualified for.
POLITICO’s count excluded hospitals and universities with religious links, which received substantially more.
 I’ll leave the analysis to others about whether this makes good public policy – or even good politics. What I would be interested in knowing is what kind of due diligence was undertaken before these contracts were awarded? And what requirements for transparency and accountability were required? The GuideStar database is notably thin when it comes to religious organizations. Since most religious organizations are not required to file Form 990, we rely primarily on voluntary disclosures from religious organizations. Several thousand organizations have stepped forward and provided GuideStar with information, particularly those engaged in social services and well-known brand names that solicit individual donations. But several hundred thousand religious organizations have not made voluntary disclosures.
With nearly a third of all charitable giving going to religious organizations, according to Giving USA, that’s a problem. Increasing the requirements for transparency and accountability from religious organizations that receive federal grant money seems like an easy – and important – step to take.
Posted By Bob Ottenhoff on December 9th, 2010, in these categories: Government | GuideStar | Nonprofit Practice In this holiday season we tend to focus on the role of individual contributions to charities. This is an important subject since many nonprofit organizations receive the bulk of their giving during the last few months of the year. But many nonprofits receive the majority of their funds not from individual donations but from service fees and contracts, particularly those in vitally-needed health and social service agencies. Sunday’s New York Times reported on the mounting debts of states, nearing several trillion dollars, and predicting a crisis point where “it could overwhelm them in the next few years.”
A new study underscores the vulnerability of state and local revenues and how it is beginning to impact nonprofit organizations. Released by the National Council of Nonprofits (NCN), the special report concludes that “The decisions to rely on nonprofits to provide services have sound policy, economic, and administrative justifications. Yet the convoluted, disjointed, and patch-worked laws and practices by which governments contract with nonprofits have led to nonpayment, underpayments, and late payments to nonprofits, in part because contracting and reporting processes have become excessively complex and irrational.”
The report lists a few of the problems occurring in many states:
- Government does not pay full cost of the services provided
- Contracts terminated mid-term
- Salaries frozen or reduced
- Jobs eliminated
- Late payments
- Benefits eliminated
- Burdensome contracting
- Excessive reporting requirements
Among the shocking results included in the report:
- Illinois’ Comptroller released a 50-page list of more than 2,000 nonprofits that the state has failed to pay almost half a billion dollars – and that’s for just the first half of this year;
- New York’s Comptroller found that 92.5 percent of the state’s contracts with nonprofits were late and the state had delayed paying numerous nonprofits for multiple years;
- The U.S. Government Accountability Office found that – for a single federal program – some states pass all dollars to the nonprofits to pay for the services while other states take funds for themselves; and
- The Congressional Research Service warned, “It appears that governments, especially state governments, may be contributing to the financial difficulties of nonprofit organizations, even to the point of not paying for contracted services.”
NCN takes a surprisingly optimistic outlook on solutions – probably more upbeat than I can muster as we work through this recession. Their special report concludes, “Although the convoluted ‘system’ is multi-jurisdictional, multi-layered, and excessively-complex, the solutions are fairly straightforward. Rather than requiring a big investment of money, most of the solutions can be achieved through intentional coordination and discipline in follow-through to make positive change for those being served, taxpayers, and the community at large.”
If you’re interested in learning more and sharing information about what is happening in your state (for better or worse) as well as your ideas for healing the broken system you can go to this link: http://www.govtcontracting.org/.
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