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.

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*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.

“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 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.

Everything old is new again; and nonprofits should stay that way

A couple of weeks ago, I received a press release about the new Palindrome Advisors group with the subject line, “Redefining the Nonprofit Model.” Doubtless you’re all familiar with the genre: A group of business people get together and decide that the nonprofit sector hasn’t cured cancer or ended poverty because people in the nonprofit sector are stupid and lazy, and that an infusion of good old hard-headed American for-profit business practices will compensate for that.  Voilà: instant Great Society!

This particular redefinition is truly revolutionary:

One hundred advisers, including many of Silicon Valley’s elite, are coming together to disrupt the nonprofit space….[They] have committed to one full year of serving on the board of a nonprofit….[and] attending monthly salons where they will discuss the specific pain points of their assigned nonprofits and attempt to find solutions as a team….[This] is part of a larger movement . . . to make the nonprofit world more efficient….[Founder Zaw Thet states,] “This is just the start of how [we] will disrupt the nonprofit sector and create new, innovative ways for business leaders to contribute….Before [this], there was no easy path for nonprofits to find experienced leaders to help them at a board management level. A board role is not just about fundraising, but includes developing growth plans, operational efficiency, cause marketing, customer relationship management, event planning, and much more.”…In order to maximize results, [the group] carefully matches advisors to nonprofits based on their skills, interests and a nonprofit’s needs.

So let’s review:  A bunch of business people are going to sit on nonprofit boards of directors! And then periodically those business people will get together and talk about how to be better board members! As board members, they will not only fundraise, but also contribute their skills! They’ll join boards based on their interest in the nonprofit’s mission! And they’ll seek ways to improve the whole sector!

The accumulation of these radical notions caused me to swoon, but the one idea that really had me down for the count was that the entire purpose of the endeavor was to “disrupt the nonprofit space.” Do nonprofits that are trying to serve their clients really need disruption in their management to supplement the disruption of funding they constantly face, the disruption of their staff produced by those funding crises, and the disruption of their ability to operate smoothly or to secure resources when their message is being drowned out by a constant drumbeat of demands for “reinvention”?

As I fanned myself back to consciousness, I was struck once more.   This time the weapon was yet another article about hybrid corporate forms designed to enable nonprofits to earn their own revenue and stop “begging.”  Whether the discussion purports to be about Low Profit Limited Liability Corporations (L3Cs) or public benefit corporations or triple bottom lines, the argument is always the same:  Nonprofits should just get with the capitalist program, identify lucrative markets, and earn their keep like every other good red-blooded American.

This approach ignores the fact that nonprofit markets usually consist of clients who are not profitable to serve—because if they were profitable to serve, the for-profit sector would be serving them.  The better a nonprofit is at finding and serving its market, the poorer it will be, because though for-profit clients are a profit center, nonprofit clients are a cost center.

These two news items have one thing in common:  They ignore the fact that what nonprofits need isn’t more advice, it’s more money. When business people are ready to provide that—when they’re ready to serve on boards, not as agents of disruption but as securers of resources, and when they’re ready to advocate for a tax system that will underwrite the necessary work done by the voluntary sector—well, that will be news.