February 2018 – Applied Wisdom

Every time a federal or state administration shifts, nonprofits are among the most exposed, sometimes negatively (extra work, extra costs, or undoing needed protections) and other times positively (greater opportunities to fulfill their mission).The fast-changing political climate in Washington is creating a host of challenges for the nonprofit community.

Nonprofits focused on climate change and other environmental issues are facing repeal of agreements and regulations.
Nonprofits focused on reproductive health, rights, and justice face funding cuts and new regulations.
Tightened immigration policies, including deportations, disrupt communities and increase the demand for children’s services and for legal aid.
The repeal of the individual mandate of the Affordable Care Act will increase the need for charity-based healthcare.

The news is not all bad.

The Giving USA 2017 report published by the Giving USA Foundation, covering charitable giving in the 2016 election year, notes that all categories of recipient organizations saw an increase in 2016, with the largest being a 7.2% increase in giving to the environment and animal organizations.

People without a lot of disposable income gave in larger numbers than they would have in the recent past. When President Trump signed an executive order suspending refugee admissions from seven Muslim-majority countries the American Civil Liberties Union (ACLU) raised over $24 million from more than 350,000 individual online donations in a two-day period—six times the amount the ACLU normally handles in online donations in a year.

Planned Parenthood received more than 300,000 donations in the six weeks after the election, 40 times its normal rate.

A new nonprofit, We The Action, connects volunteer lawyers with nonprofit organizations, to “protect and defend nonprofit organizations who need it.”

The Tax Bill’s Impact

The tax bill passed in December provides generous tax cuts to businesses and individuals, but it appears likely that it will have a negative effect on nonprofit donations.

Of greatest concern is that increases in the standard deduction for taxpayers will discourage itemized deductions, and charitable gifts can only be claimed that way. Estimates vary, but somewhere between $16 billion and $24 billion (about 6-9%) could be lost each year.

The National Council of Nonprofits points out that the new $10,000 limit on the amount of state and local income taxes and property taxes that can be deducted federally is likely to pressure state and local governments to enact tax and spending cuts, leading to elimination of programs serving people in need and increasing the burden on charitable nonprofits and foundations to fill the gaps.

Doubling the exemption in the estate tax is expected to lower charitable giving by $4 billion per year because of the impact it will have on tax planning.

All of this is more troubling given the current financial health of the nonprofit sector. According to a new report, half of U.S. nonprofits had less than one month’s cash reserve. 30% had lost money over three years, and 7% were technically insolvent.

The potential for reduced funding due to tax cuts is likely to further impact the many nonprofit organizations that depend on government for half or more of their budgets.

But there’s no point in bemoaning what’s not possible. You’ve got to focus on strategy and action. You need to get into the mindset that there will always be change. Steps to be taken include increasing the sense of urgency of your whole organization including the Board for fundraising. Be sure you have prioritized your strategy so it is fundable.

Think about how you can message to your donor base (or new donor audiences) that you need their donations more than ever.

Are there cost reductions to make? Consider merging with similar organizations.

I’d like to hear from you on this topic, please comment below.

When I was in Washington, I was impressed with the politicians and the bureaucrats. As Majority Leader and later as President, Lyndon Johnson got a lot done. Presidents Reagan, Bush Senior, and Clinton were effective at accomplishing policy changes that made peoples’ lives better and made government work better. Part of the problem these days is that the extreme factions of the parties have driven so many moderates out of power.

I see a big shift at the cabinet level. Cabinets used to have people with solid experience. You don’t often see senior business people with global experience in cabinet positions anymore. There’s been rising influence among political consultants, pollsters, and young White House staffers. Somebody who’s been a CEO of a global company has a problem not being heard by the President and dealing with snarky staff people. It’s a weakness that’s evolved at the White House. Think about Lincoln and his “team of rivals.” He surrounded himself with people he knew disliked him and competed with him, but it worked because he actively sought the full spectrum of opinions, he managed the process, and he produced decisions that reflected all that input. We don’t have that today.

Government is supposed to figure out solutions for people and must collaborate to do that. I again stress the importance of my rules of collaboration. You can’t achieve the most basic element of those rules, mutual respect and trust, when you put extremists in key jobs. They don’t want to compromise to get effective solutions for the majority. I like to see groups work collaboratively, whether at the small unit level, corporate level, industry level, government level, or global level. I don’t care too much who gets credit, it’s about moving forward, accomplishing goals. Unfortunately, the culture of a government bureaucracy tends to be such that rapid change puts people at risk. Unlike the culture we created at Applied, government staff often are scared of bad news. They don’t want to go through the transformation exercises; change is not a medium of opportunity, it’s a risk to your job and promotion.

I believe a strong and fiscally responsible economy is a paramount goal, without borrowing from our grandchildren. The extremists today make me concerned that both parties are leaving moderates like me out of the process. Parties can’t just be against everything the opponents are for; parties have to be fiscally responsible and lead, govern, and solve problems for all Americans.

I’d like to hear from you on this topic, please comment below.

Sudden Policy Shifts: Nonprofits and Washington Politics

Problems in Washington