The billionaire vs. free-riding multimillionaires

Love this account of a pissing match between Warren Buffett and Mitch McConnell.  The Senator from Kentucky has been urging the Sage of Omaha to make voluntary contributions to the Treasury if he felt he was undertaxed.  Buffett has now responded that he’ll match any such contributions made by Republican Senators.

This dialogue makes in a different form an argument offered by that raving lefty Milton Friedman.  Voluntary contributions to reduce poverty (or do any of the other things we rely on the government to do) are insufficient, because everyone would be willing to pay his/her share only if s/he could be sure that everyone else would be willing to pay his/her share.  Otherwise, no dice.

Doubtless McConnell will ignore Buffett’s challenge and continue his nonsensical bluster about Buffett’s freedom to pay extra if he feels “guilty” about his low tax rate.  But the point isn’t, of course, how Buffett feels, or even what he does—it’s what everyone else does.  And if McConnell and his buddies don’t donate to the Treasury, then they are poster children for the free-rider problem—thereby proving Buffett right: philanthropy is not sufficient and taxation is necessary.

H/T the indispensable Rick Cohen at The Nonprofit Quarterly.

Barack Hussein Obama

This video  is the most elegant iteration I’ve seen of the dialogue on the left about the President.  What’s so amazing about “Barack Hussein Obama,” written and directed by Jamil Khoury, is that both sides are treated with respect.  And what a shame that should be amazing!

Khoury is Artistic Director of the Chicago theater company Silk Road Rising, and this piece is a component of the company’s ambitious work-in-progress “Mosque Alert.”

The video is 13 minutes long.  Please make time to watch it.

What should (but won’t) be the last word on the charitable tax deduction

The most powerful argument in this LA Times op-ed piece opposing the charitable tax deduction is that it’s a poor trade-off.  Retired foundation executive Jack Shakely points out that charities have permitted themselves to be shorn of their ability to influence policy and politics in return for a mess of pottage.  Of course the restrictions on charitable participation in the public arena aren’t as draconian as nonprofit executives (and especially Boards) think they are—but the point is that nonprofits understand themselves to be constrained, and rather than bothering with the details remain quiescent politically.

As strong a proponent as I am of the pursuit of individual gifts, in the real world virtually every social service agency needs seriously more government money if it’s going to make any dent in the social problems it faces.  The more social service agencies feel free to advocate for this particular budget bill or that particular provision in a piece of legislation—both prohibited by the current tax-code provisions—the more likely it is that those bills and provisions will pass, which would serve way more of the agencies’ clients than the most blue-sky estimates of their potential for growth in individual giving.

And for someone with foundation cred to say this!  All hail Jack Shakely.

h/t The Nonprofit Quarterly Newswire.

The Public Be Damned: Using the Amtrak Script to Destroy the Post Office

If the conversation about the end of the U.S. Postal Service sounds familiar, it’s not just because we’ve heard variations of it since 1970, when the old Post Office Department became a separate business.  It’s also because the destruction of mail delivery closely parallels the wrecking of American  passenger rail.  Apparently the Congress has it in for quasi-public institutions with work forces composed disproportionately of African-Americans.

Passenger rail has always been a losing proposition; the money is in freight.  But until the late 20th Century, as the price of using public assets—tracks, switches, signals and the rest—freight railroad companies were required to carry passengers at a loss.  Then somehow this social compact broke down.  Both railroads and their regulators started talking as if railroading were an ordinary commercial enterprise instead of a public utility.  Ordinary for-profits aren’t expected to maintain business lines at a loss.  Indeed, to the extent they do so, they’re considered incompetent.  So the people making money from national railroad facilities were able to persuade Congress that they shouldn’t have to bother maintaining passenger service.  In other words, the railroads figured out how to shift their burden—what had been a simple cost of doing business—to the public.  Voila: Amtrak.

Independent passenger rail was bound to be a financial failure, and it was.  So year after year after year Congress has complained about Amtrak’s losses and tried to reduce them by shrinking the system until by now it’s small enough to drown in the proverbial bathtub.  Little-noticed along the way is the fact that many of the jobs being lost belong to black people.

The Brotherhood of Sleeping Car Porters was the first black-led union recognized by the AFL, and probably the most powerful union dominated by African-Americans in the United States.   Much of the foundation of the black middle class was laid on the decent wages and benefits and pensions fought for and won by that union.  So whatever hurts Amtrak—and these days, pretty much everything does—also hurts the African-American community.

Now connect the dots to the Postal Service.  Mail, like rail, is a public utility.   (If you doubt that, take a look at the Constitution, where the Post Office rates a specific mention.)  A group of companies—the mailing houses and catalog producers—get to use this public utility to make a private profit, and they’re doing very well by that arrangement.

Once again, though, the price they were supposed to be paying for this benefit was to subsidize service to individuals.  So once again, someone re-conceived this public utility as an independent corporation subject only to the iron law of profit and loss.  Now the profitable commercial service can  continue on its merry way while the money-losing public service is forced to resort to the kind of cuts which predict—if they don’t actually cause—an imminent visit to the scrapheap (or bathtub).

And once again, an outsized group of the fired employees are African-Americans, because the Post Office was an equal opportunity employer before the phrase had even been coined.  So right in the middle of the Great Recession another pillar of the black middle class is knocked down.

There is an alternative to the current flood of crocodile tears over the death of written communication.  We could return to the social compact that regarded mail service—and rail service, for that matter—as something to be paid for by the people who benefit from it most.  That doesn’t mean those of us who receive an occasional Saturday letter, or sometimes take the Metroliner—it means the freight shippers.  In the case of the Post Office, at least, the public has been subsidizing them instead of the other way around.  End that particular piece of corporate welfare and see how many post offices can suddenly re-open.

Perhaps it’s only a coincidence that these two agencies, staffed by black workers, have been asked to do the impossible and then punished for failing to manage it.  But coincidences of this kind—which permit imposition of exceptional harm on one group provided the primary purpose of the harm is making money—are precisely what is meant by the term “institutional racism.”

It isn’t too late to remember that rail and mail are public utilities and to govern them accordingly.  Otherwise, we’re just echoing the words of an earlier Gilded Age, spoken by a railway man as he was cancelling a mail train: “The public be damned!”

Why the public should fund the arts, after all

(cross-post with nonprofiteer.net)

Had a fascinating conversation recently with Margy Waller, a special advisor to Cincinnati’s ArtsWave, which leads the nation in evidence-based approaches to advocating for arts funding.  Ms. Waller had reached out to correct my misunderstanding (and therefore misreporting) of ArtsWave’s efforts, noting that the argument is not that the public should fund the arts to promote economic recovery but that it should fund the arts to promote neighborhood vibrancy.  This nuance turns out to make all the difference.

Here’s the ArtsWave insight: people are ready enough to agree with the notion that the arts are good for the economy.  But if you probe deeper, and ask what top three things we should do to improve the economy, no one answers “subsidize the arts.”  So apparently the argument that the arts are an economic engine (true or false) is unpersuasive, which is what really matters.

But the ArtsWave research also uncovered the fact that if you ask people what would improve their neighborhood the most, the arts come up time and time again.  Why?  Because artists’ residences are known to herald an improvement in real-estate values; because arts audiences mean feet on the street and therefore greater public safety; because arts venues are known to spawn coffee shops and restaurants and other places of urban liveliness.

Therefore, the argument for public funding needs to be focused not on the art but on the public benefits of art-making.  This simultaneously ends the unwinnable argument about whether x or y is valid art or a useful expenditure of public funds and reminds people of what they believe anyway, that investment in arts-related infrastructure benefits everyone—not in some airy-fairy, soul-stirring, life-improving sense but in the grossest day-to-day experience of quality of life.

Thus an appeal to provide tax breaks to bring artists to a particular area would be framed not as a subsidy to these all-important art-making beings (read: overprivileged white people who ought to get jobs) but as a way to offset (maybe even reverse) the damage to property values wrought by foreclosures.  The subsidy is to the value of private property (something that can be monetized) rather than to the value of art (something that cannot).

As instrumental and cold-blooded as this approach may seem, Ms. Waller makes the powerful point that vibrancy is what people love about the arts—and that weaving the arts into the fabric of other social needs and activities enables people to appreciate the arts “not as consumers but as citizens.”

That last point is particularly powerful.  Asked what citizens should do to respond to 9/11, then-President Bush had nothing more to offer than, “Go shopping.”  Anything that enables us to respond to public concerns in a public spirit; anything that combats the notion that government is the problem and privatization the solution; anything that reminds us that we’re a republic if we can keep it; anything that illustrates we don’t have to buy something to value it—any of these is a consummation devoutly to be wished.

As a wise person once noted, the important thing is not to have BEEN right, but to BE right.  I’ve been wrong in my blanket condemnation of public funding for the arts, because I thought of it exclusively in the frame established by its opponents: as subsidies to artists to create what might or might not actually be valuable.  Once the framing shifts to “vibrancy,”* and to concrete benefits to the broader society, public arts support suddenly makes sense.  No one else may care, but what a relief to me!  I get to stop being the only left-wing theater critic in the country opposed to public funding for the arts.

I continue to think that the NEA itself is a lost cause and that energy spent defending it would be better spent squeezing support for the arts out of HUD, Fannie Mae/Freddie Mac and local housing authorities.  But that’s a matter of strategy.  As a matter of principle, I’m grateful to have discovered a valid way to defend taxpayer support to something that matters so much to me.

—————–

*Yes, “vibrancy” can be a euphemism for “gentrification,” or at least its prodroma.  But if we plan for vibrancy (instead of simply hoping that lightening strikes in this ‘hood or that), we can also plan to prevent displacement.  And without displacement, “gentrification” is just another word for “safe streets, amenities and public services”—for everyone, rich or poor.

One out of two ain’t bad

Well, this makes sense–if we make it nearly impossible for felons to regain their right to vote, they’ll surely want to regain their right to fire weapons instead.

 

“So many of the people who need charity don’t seem to deserve it” . . .

. . . wrote Andy Rooney in this long-ago essay.  This makes as much sense as anything else Andy Rooney ever said, which is to say, not much.  What does it mean to “deserve” charity, beyond needing it?  As  George Bernard Shaw’s Alfred Doolittle  memorably explained  in Pygmalion,

If theres anything going, and I put in for a bit of it, it’s always the same story: “Youre undeserving; so you cant have it.” But my needs is as great as the most deserving widow’s that ever got money out of six different charities in one week for the death of the same husband. I dont need less than a deserving man: I need more. I dont eat less hearty than him; and I drink a lot more. I want a bit of amusement, cause I’m a thinking man. I want cheerfulness and a song and a band when I feel low. Well, they charge me just the same for everything as they charge the deserving. What is middle class morality? Just an excuse for never giving me anything.

Philosopher Matt Zwolinski made the same point in somewhat more formal terms.

T]he mere fact that there is a valid moral distinction to be made does not entail that we want our public policies to make it.  It is, after all, difficult to discern between the deserving and the undeserving – maybe especially for governments, but for private charities too.

And Jewish folklore provides yet another version.  The story is told of a rabbi who gave a beggar $100 and then faced the reproaches of his wife, who’d seen the beggar’s wife wearing fur.  “He told me he needed it, and I had it, so I gave it to him,” replied the rabbi.  “What he does with it after is none of my concern.”  The point is that generosity is the process of separating yourself from your money, not the process of evaluating someone else’s virtues.

Does I give my money to causes I judge worthwhile (and therefore deserving) and to agencies I believe are efficient (and therefore deserving)?  Of course.  But do I worry about whether the UN Population Fund is providing assistance only to women who became pregnant by an angel, or whether the ACLU vindicates the rights only of upright church-goers?  Of course not.  People who need help, deserve help.  End of conversation.

The Independent Sector and the Joyce Foundation vs. The Facts

Ellen Alberding’s interview with the Chicago Tribune in advance of the Independent Sector‘s meeting in Chicago earlier this week was not her, or philanthropy’s, finest hour.  Ms. Alberding, head of the Joyce Foundation, described the Foundation’s approach to what even she characterizes as a perfect storm of increased need and reduced resources in the nonprofit sector:

We do what any good business person would do when faced with reduced resources. We have become very focused on first maintaining support of our core grantees. Foundations are required to spend a minimum amount — 5 percent of our assets. On occasion, we will overspend that in order to keep our grantees whole.

In other words, business as usual.  Most likely the Joyce Foundation’s governing documents prevent its Board from spending its assets down to zero, but there’s no reason why the Foundation shouldn’t use more than the statutory minimum 5% of its $800 million in assets to sustain the work it exists to support.  Foundations are NOT businesses; they exist to give their money away, and only in some vague theoretical sense is an institution with $800 million facing constraints preventing it from giving away more than $40 million.

If Joyce gave only 6% instead, that would be another $8 million available to nonprofits in its areas of concern—a not-insubstantial 20% increase.   What is stopping the Foundation from doing this, other than a misguided sense that preserving its capital is more important than doing its job?

And then the cherry on the sundae:

It’s the position of the Independent Sector that a cap [on charitable deductions] will reduce charitable contributions across the board and diminish support for nonprofit organizations. I believe it’s the administration’s view that the 28 percent cap might have some impact, but it wouldn’t have a dire impact. (But) I think we have to listen to the organizations themselves, who feel otherwise.

In other words, their minds are made up—don’t confuse them with the facts.  Notwithstanding reality, the prejudices of self-interested parties will dictate the organization’s behavior.    Well, as it is written, “Everyone is entitled to his own opinion, but not his own facts.”  As President of the organization, doesn’t it behoove Ms. Alberding to make sure her members don’t make their decisions based on fantasy?

The charitable deduction: Beyond “Will not!” “Will so!”

Kudos to my nonprofit consulting colleagues Campbell and Co. for sponsoring a study by the Indiana University Center on Philanthropy to determine the impact on giving of increased marginal tax rates and a cap the charitable-giving deduction.  While some of us have been arguing that both of these moves toward social justice should be supported by the nonprofit community, and others have been arguing that the world will come to an end if every penny of tax savings isn’t afforded to the generous rich, these institutions decided to look for the facts.

The facts–as elegantly stated in a Congressional Research Service study that came to the same conclusion–are these:

The estimated effects of the cap and other elements of the budget package depend on whether the proposals are compared with the current tax rates of 33% and 35% or the rates scheduled for 2011, 36% and 39.6%. Compared with current rules, estimated effects are between one-half a percent and 1% decline in charitable giving . . . . When compared with tax rate provisions in 2011, charitable deductions are estimated to fall by about 1.5% if only the cap is considered, but if income effects from the entire budget package are included contributions actually rise 2.5%.  The relatively modest effects of the proposal arise because (1) the effect of caps on the subsidy value is limited, (2) only a fraction (about 16%) of charitable giving is affected, and (3) because evidence suggests that behavioral responses to changes in subsidies are relatively small.

(Emphasis mine.)  To paraphrase: the tax subsidy isn’t much reduced; that small reduction doesn’t affect 84% of charitable giving; and, in fact, charitable giving isn’t all that tied to tax benefit.

So whether we take the IUPUI findings that charitable giving is likely to decline modestly if these tax reforms are enacted, or the CRS findings that it might actually go up, we should realize that everyone who’s hyperventilating about the impact of these changes on their poor struggling private school, museum or hospital should just take a deep breath.   Given that the reforms will support many of the social programs, environmental protections, educational institutions and health care options the nonprofits themselves seek to provide, it’s about time for the community to stop whining and agree to pony up.

 


Illinois and the amazing disappearing property tax exemption

When Harold Pollack wrote about the recent Illinois Department of Revenue decision to withdraw property tax exemptions from three hospitals, he naturally focused on the impact of the decision on health care.  But those of us who work in other areas of the nonprofit sector are worried by the decision as well–or, if we aren’t, we ought to be.

Though the Revenue Department’s ruling and the Supreme Court decision on which it was based both concern hospitals, there are now working their way through the Illinois court system a pair of cases challenging the property tax exemptions of luxury retirement communities.  The plaintiffs are taxing districts which would otherwise be collecting big bucks from the communities, one of which is located on prime Chicago Gold Coast real estate–just around the corner, as it happens, from Northwestern’s Prentice Women’s Hospital, which will now (barring court intervention) have to pay property taxes on its equally valuable swath of land.  Lower courts have already ruled both retirement facilities unworthy of property tax exemption, and lawyers involved in both cases expect victory in the face of appeal based on the precedent of the hospital cases.

So what’s really going on here?  Certainly withdrawing tax exemptions from wealthy organizations sitting on expensive land makes sense from the standpoint of municipal budgets, which here as elsewhere are stretched beyond breaking.  So the Illinois Department of Revenue is following Willie Sutton’s [apocryphal] advice to go where the money is.

But what the Illinois Supreme Court has now said is that there are only three categories of tax-exempt real property under the Illinois Constitution: schools, churches and “charities.”  Further, the Court said, a “charity” is not simply any nonprofit organization, or even any nonprofit organization entitled to 501(c)(3) status and tax-deductible donations under the Internal Revenue Code.  A “charity” for Illinois property tax purposes is an agency that gives things away.  How many things?  Worth how much?  This remains unclear: perhaps a “charity,” like “pornography,” is simply something a court knows when it sees it.

And if the question is, “Are you a charity?” will the YMCA of Metropolitan Chicago be able to pass muster?  Will the Museum of Contemporary Art?  Will the Lookingglass Theater?  All three are located within spitting distance of the now-taxable hospital and retirement home.  So they’re likely targets for the next round of investigations.  What do they give away?  Worth how much?

(Just to confuse things even further: the Illinois constitutional standard is that only church property used for religious purposes is exempt; supplementary holdings are not.  I’m not aware of a parallel ruling about schools, but would expect the same standard to apply.  So if a charity owns property not used for charitable purposes–like, oh, vacant property the YMCA may someday use as a camp–will that be taxable?  If so, then it’s not even enough to be a charity–you have to be doing charity.)

As a consultant to charities, I’m supposed to be jumping up and down and screaming about this terrible precedent; but actually I’m not.  It’s long past time for us to ask the question whether arts organizations are genuinely charities.  (I’d ask the same question about well-endowed educational institutions and churches, but the Illinois Constitution prevents me from getting any reward for doing so.)  My only concern is how unaware nonprofit executives and Board members seem to be of the implications of these decisions.  Asked about her agency’s risk of having its property taxed, one executive dismissed the issue: “We’re a nonprofit–everything we do is charitable.”

Well, no.

This argument is playing out around the country.  What’s unique about Illinois is that the discussion is taking place in the courts rather than the legislature or the city council.  This interferes with any effort by nonprofits to rouse public opinion–or even themselves–in defense of their privileges.  Instead, the property tax exemption is going the way of the Cheshire Cat, bit by bit until there’s nothing left but the smile.

Let the Illinois nonprofit beware.