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POLICY PROPOSALS TO STRENGTHEN THE NONPROFIT COMMUNITY’S

ABILITY TO SERVE OUR SOCIETY  

January 6, 2009

America’s voluntary spirit has shaped the history and character of our country since its inception. That great tradition of collaboration, generosity, and participation continues today through an expansive network of 1.5 million public charities, private foundations, and religious congregations. Together, these organizations employ 12.9 million individuals and mobilize over 61 million Americans who volunteer their time to provide vital services in such fields as health, education, social assistance, community development, and the arts. Our expansive network of charitable organizations provide the means for people to engage collectively and collaboratively in critical research, community-building, and advocacy efforts that strengthen democracy, advance freedom of expression, and add richness and diversity to community life. U.S. nonprofits assist victims of disasters, provide educational and economic opportunities, alleviate poverty and suffering at home and abroad, and foster worldwide appreciation for democratic values of justice and individual liberty.

Charities and foundations are created and sustained by people who want to give their time and resources to solve problems and enrich their communities. The policies and actions of our government also have a profound effect on the ability of Americans to benefit from the richly varied programs and services these vital organizations provide. These policy proposals are offered by Independent Sector, a nonpartisan coalition of over 600 charities, foundations, and corporate philanthropy programs, to inform the policy decisions of the 111th Congress and President Obama’s administration to help achieve our shared vision of a just and inclusive society and a healthy democracy of active citizens, effective institutions, and vibrant communities.

1. Ensure adequate resources and fair and responsible fiscal policies to support vital programs that sustain, protect and strengthen communities.

Our government provides funding for vital programs and services that Americans depend on, including access to quality education, care in sickness and old age, safe highways and infrastructure, clean air and water, and more. The federal government administers some of these programs directly, and delegates responsibility for others to state and local governments. Many government-funded programs are run by nonprofit organizations through grants and contracts.

As partners in delivering services to the American people and to those in need in other parts of the world, the nonprofit community believes it is essential that our federal budget include adequate funding for non-defense discretionary programs that takes into account inflation, population growth, and increased needs as a result of economic and other conditions. Such funding must not come at the expense of mandatory programs that provide critical support to our country’s most vulnerable populations, including Social Security, Medicaid, Temporary Assistance for Needy Families (TANF), the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), the Food Stamp Program, and the State Children’s Health Insurance Program.

• Congress should follow the principles of “shared sacrifice” which characterized the major, successful deficit-reduction laws in 1990 and 1993 in creating a balanced budget package that combines reasonable adjustments to major programs with increases in taxes.
  
• Congress should evaluate any changes in funding allocations for particular programs to determine where cost savings can be implemented without jeopardizing the impact and effectiveness of those programs, rather than imposing across-the-board or automatic cuts to all programs.
  
• Congress should stipulate that government contracts with nonprofit organizations to deliver services on its behalf must cover the full cost of services, including necessary administrative overhead costs.
  
• Congress should maintain the federal estate tax at levels that minimize detrimental impact on federal revenues, protect farms and small businesses, and preserve incentives to give back to the community through charitable contributions.

2. Preserve and expand policies that help Americans give back to their communities.

Our nation’s tax system has strongly encouraged Americans to give back to their communities through tax deductions for contributions to tax-exempt charitable organizations. The system of tax deductions for charitable contributions has been based on a broad concept of charity which has given rise to a diverse and pluralistic set of organizations all dedicated to the public good. Its effectiveness in encouraging Americans to give back rests largely on the freedom of choice granted to donors in determining the organizations and causes they will support.

Congress also has provided strong incentives for Americans to give their time in service to communities in our own nation and throughout the world through programs such as the Peace Corps, AmeriCorps, and other national service programs, and through tax deductions for mileage expenses incurred for volunteer service.

• Congress should pass legislation such as the Serve America Act to expand the opportunities for people of all ages to engage in community service through stipended programs, voluntary paid leave and subsidies from their employers, and other types of financial incentives.
  
• Congress should extend and expand the IRA charitable rollover provision which allows older taxpayers to donate directly to nonprofits tax-free from their retirement accounts
  
• Congress should ensure that Americans receive the same tax deduction for using their personal vehicles to deliver services for charitable nonprofits as they do for use of their vehicles for business purposes.
  
• Congress should revise the excise tax on private foundations’ net investment income to ensure that foundations are not penalized for increasing gifts in times of greatest need. Under the current two-tiered system, a foundation that substantially increases its distributions in a given year will also increase the five-year average on which its tax rate is determined. As a result, the foundation will most likely be required to pay tax at the two percent rate (rather than one percent) for the next five years. The two-tier system should be replaced by a single-tier rate.
  
• Congress should not impose limits on private choice in giving by establishing new categories or subcategories of nonprofit organizations that receive preferred tax treatment.

3. Ensure that nonprofits have the capacity and capital to serve the needs of our communities.

America’s 1.5 million charitable nonprofits are on the front lines of helping Americans when they are sick or hungry or poor and disadvantaged; conducting research to prevent and cure disease; offering opportunity through education; protecting our environment; and enriching our lives through the arts, religion, and many other programs. Nonprofits are able to deliver those services through the efforts of their over 13 million employees and well over 4 million volunteers. Our government provides access to capital, loans, mentoring programs, business planning services, financial and legal advice, and management training to for-profit businesses, particularly small business, that are not available to nonprofit organizations. Nonprofit organizations are a critical component of the nation’s economy, and they provide valuable community services and enhance civic life. Investing in improving the capacity of nonprofits can yield big dividends in efficiency and effectiveness, and ensure that Americans will have access to the vital services nonprofits provide.

Nonprofit organizations are generally not in a position to offer all of the benefits available to employees of for-profit corporations, nor are they able to offer the job protections and benefits available to many government employees. Most nonprofit employees earn wages that are considerably lower than their counterparts in either for-profit businesses or government. Young Americans with substantial debts for educational expenses may not be able to pursue public service work in nonprofit organizations without some alleviation of those debts or other financial incentives.

Nonprofit employers have been particularly hard hit during the recent economic downturn as the need for their services has increased much more rapidly than the financial support for those services. Nonprofits that offer their employees defined benefit pension plans for their retirement have experienced sizeable losses due to the fluctuating stock market. New rules enacted for such plans as part of the Pension Protection Act of 2006 currently require those organizations to divert substantial financial resources away from vital programs to meet their pension obligations.

• The Executive Branch should establish a high-level office to coordinate education and oversight efforts in all federal agencies that are directed towards improving the capacity of nonprofit organizations to serve communities. This office should work to expand awareness and understanding of the work of the nonprofit community, address inequities in the government contracting process, and provide funding for high-performing programs that offer proven training and technical assistance to nonprofits to strengthen their programs and core operations.
  
• Congress should ensure that nonprofit employers are able to participate fully in government programs offered to for-profit employers to ensure that all employees have access to affordable health care.
  
• Congress should encourage more Americans to enter careers in government and the nonprofit community by expanding the public service student loan forgiveness program and offering education scholarships in return for a specific term of service after graduation.
  
• Congress should ensure that nonprofit organizations have the same level of access to capital investments and loans, as well as training and technical assistance, as is currently provided to for-profit enterprises through the Small Business Administration.
  
• Congress should ensure that programs designed to increase volunteer service by Americans include sufficient funds to enable nonprofit organizations to recruit, screen, train and manage those volunteers.
  
• Congress should provide relief to nonprofit organizations that sponsor defined benefit pension plans to ensure that they are not required to divert resources from their program services to meet new funding obligations enacted as part of the Pension Protection Act of 2006. Specifically, Congress should extend the transition period for implementing those obligations, allow flexibility in choosing funding election methods, and permit smoothing of unexpected losses.

4. Protect the rights of Americans to speak out through nonprofit organizations.

Our nation’s constitution asserts the rights of the American people peaceably to assemble and to petition the government for a redress of grievances. Throughout our history, Americans have turned to nonprofit organizations to provide a strong, collective voice to influence and change the policies and practices of government, corporations, and their fellow nonprofit organizations. Most of the major social movements of the last two centuries – abolition, temperance, child welfare, workers’ rights, women’s suffrage, civil rights – began with individuals banding together in nonprofit organizations to advance change. Today, our nation needs the voices and the expertise of our nonprofit advocates to realize our vision of a better future for all.

Charitable nonprofit organizations have been prohibited from engaging in partisan political activities since 1954, but their right – and responsibility – to engage in non-partisan advocacy and lobbying activities has always been recognized in our nation’s tax laws. In 1976, Congress enacted laws which specifically recognized the importance of advocacy and lobbying by nonprofit organizations and established specific limits on the types of nonpartisan lobbying activities nonprofits may conduct. While private foundations have been generally prohibited from lobbying (other than for self-defense), the regulations implementing the 1976 law established clear guidelines for the kinds of support foundations may provide to organizations that lobby.

• Congress should simplify and modernize the lobbying rules for nonprofits by updating the 1976 Lobby Law. Specifically, Congress should raise the $1 million ceiling on lobbying expenses set in 1976 to at least $3 million to account for inflation and eliminate confusing distinctions between “grassroots” and “direct” lobbying.
  
• Congress should amend the tax code to permit private foundations to support nonpartisan lobbying activities conducted by other 501(c)(3) organizations under the same rules that apply to those organizations.
  
• Congress should not restrict the ability of nonprofit agencies that apply for or receive government funds to use non-governmental funds to conduct nonpartisan advocacy, lobbying or other legitimate program activities that further their charitable missions.
  
• Congress should maintain current statutory prohibitions on the participation of charitable nonprofits in partisan political activities. Individuals should not be permitted to use tax-deductible contributions to avoid tax and legal restrictions that apply to political donations, nor should they be able to use charitable nonprofit organizations, which are, by definition, organized for public purposes, to advance their personal partisan political views.

5. Ensure that Americans are able to continue vital charitable work throughout the world without unduly jeopardizing their safety or their civil rights.

The philanthropy and charitable work of thousands of individuals and organizations based in the United States has been instrumental in reducing the number of people throughout the world who die of hunger and disease, who live in poverty, and who are unable to read and write. These organizations are committed to practices to prevent the diversion of their resources for non-charitable purposes, including terrorism. Those that receive government funding for their charitable work certify in writing that they have taken all reasonable steps to ensure that they do not provide material support or resources to those who commit, advocate, facilitate, or participate in terrorist acts. At the same time, those organizations must ensure that their actions do not jeopardize the lives of Americans working abroad by requiring them to collect information on behalf of U.S. intelligence and security agencies. They must also respect the civil rights of Americans protected by the Privacy Act who might be denied employment on the basis of information that would not be revealed to them and that they therefore could not challenge.

The nonprofit community has been deeply concerned about the practicality of the “Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-based Charities” issued by the Treasury Department, which many believe have discouraged international charitable activities by U.S. organizations. In response, the nonprofit community came together to develop its own Principles of International Charity to provide appropriate guidance on efforts philanthropists and charitable organizations should take to prevent the possible diversion of their resources to support terrorism or other unwanted purposes. Many believe that recent actions by USAID and other government agencies requiring international charitable organizations to gather and submit biographic information on the individuals and organizations they work with would violate the civil rights of American workers and have the strong potential of inadvertently exacerbating the safety risk for charities and humanitarian workers operating abroad.

• The Executive Branch should ensure that the Principles of International Charity developed by a broad group of foundations and nonprofits are followed by the Treasury Department, the Combined Federal Campaign, and other federal agencies and programs in developing appropriate measures to prevent the diversion of charitable resources to support terrorism or other illegal activities.
  
• Congress should prevent federal agencies administering foreign assistance programs from imposing requirements on international charitable organizations that would cause them to violate the civil rights of those with whom they work, to unduly jeopardize the safety of their employees and partners working outside the United States, or their own charitable missions.

6. Support funding and policies that provide for transparency and accountability to ensure integrity and public trust in our institutions.

The nonprofit community has significantly increased its efforts to improve governance, accountability and transparency in recent years and to promote self-regulation efforts. Effective oversight of nonprofit organizations also requires strong education programs and vigorous enforcement of the law at both the federal and state levels. Funding for federal and state oversight of tax-exempt organizations has become increasingly important as the size and complexity of the exempt sector has grown. Improvements have been made through expanded use of technology and electronic filing of returns, and more could be accomplished with broader adoption of those efforts.

• Congress should increase the resources allocated to the IRS for oversight and enforcement of tax laws affecting charitable organizations and all taxpayers.
  
• Congress should authorize funding for all state governments to establish or increase their oversight and education of charitable organizations with appropriate requirements for abiding by minimum standards of oversight and adoption of uniform state filing rules.
  
• Congress should amend the tax code to permit the IRS to lower the requirement for filing annual information returns electronically from the current level of 250 tax returns (such as Forms W-2, 1099, etc.) per year to five tax returns.

Last Updated: January 6, 2009