Doing Better at Doing Good

NC nonprofits getting heartburn over changes coming to state tax code

March 16, 2013 

We both work with nonprofit organizations, and we have also been privileged to interact with many other outstanding ones in writing this column over the past three years.

Here’s one thing we’ve learned: North Carolina is teeming with nonprofits that change lives each day through their innovative models, gifted personnel and tremendous passion for making an impact.

And here’s another: Nonprofits across the state are under mounting pressure – potentially heightened even more by public policy proposals being debated right now in Raleigh.

In our volatile economic climate, the demand for nonprofit services – ranging from job training to health care to education – keeps growing. Resources in the nonprofit sector, however, are dwindling.

As state legislators have struggled to square spending with a reduced tax base, many nonprofits have taken deep cuts in crucial state grants, depriving the vulnerable constituencies they serve of tens of millions of dollars.

During the two-year state budget cycle for fiscal years 2011 to 2013, for example, funds for the Smart Start early childhood education program were slashed 20 percent. Nonprofit health and human service providers saw grants and contracts drop by $5 million. The Clean Water Management Trust Fund took a hit of nearly 90 percent.

Nonprofit leaders aren’t complaining; they understand the lasting impact of the recession and the fact that almost everybody is paying a price for it.

But they are worried – and uncertainty in the capital is adding significantly to their stress.

Most critically, there’s the prospect of a comprehensive overhaul of the state’s tax system in the legislature this session.

At this point, it’s tough to tell exactly what changes to the tax code might mean for nonprofits. But proposals have emerged that could potentially eliminate nonprofit sales tax refunds, apply sales tax to services offered by nonprofits, or end their property tax exemptions.

There’s also concern among nonprofit leaders about the future of charitable giving incentives. Specifically, they want to protect the state’s estate tax, which encourages gifts to charities.

And there’s the matter of red tape. David Heinen, director of public policy and advocacy at the N.C. Center for Nonprofits, says that 40 percent of our state’s nonprofits report experiencing delays of weeks or months in receiving state grants – which can force nonprofits to furlough staff or pursue high-interest loans to cover costs.

In all, it’s a climate that’s creating heartburn for nonprofit leaders such as Walter Weeks Jr., executive director of Wake Enterprises, a Triangle organization that provides job training for people with disabilities.

Weeks describes himself as politically conservative. But fostering healthy public policy for nonprofits, he says, “isn’t a conservative or liberal issue.” Many North Carolina nonprofits, especially those providing social services, are already stretched to the limit. “Any future negative impact from tax reform could really knock some providers out of the system,” Weeks says. “And then you have even more people sitting out there with great needs.”

Weeks’ nonprofit has about 100 full- and part-time employees. Each day, they help 260 people with disabilities prepare for and successfully work in a variety of jobs. Almost all of Wake Enterprises’ $3.4 million annual budget comes from Medicaid and state funds.

If those funds are decreased outright as part of the new state budget cycle or if new tax laws increase costs for nonprofits, Wake Enterprises would have to drop some of the people it serves – taking them out of the workforce and putting higher burdens for care and training on family members who are trying to hold their own jobs, as well as resulting in potential longer-term costs for the state.

Lawmakers, Weeks says, “have to be careful not to accidentally cause harm in this tax reform process. … As you put additional burdens on nonprofits, you have to be aware of what the outcomes can be.”

The N.C. Center for Nonprofits is leading the fight to ensure that policy proposals on the table right now do not inflict that harm. And there’s a shrinking window for nonprofits throughout the state to put their concerns in front of their own legislators during this legislative session.

At times like this, doing better at doing good means doing better at making all voices heard.

Christopher Gergen is CEO of Forward Impact, an adjunct professor at Duke University, and author of “Life Entrepreneurs: Ordinary People Creating Extraordinary Lives.” Stephen Martin, a director at the nonprofit Center for Creative Leadership, blogs at www.messyquest.com. They can be reached at authors@bullcityforward.org and followed on Twitter through @cgergen.

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