NSRI Blog

During the 2012 presidential campaign, nonprofit organizations wondered how their sector would be affected by the outcome of the election. With the results now known, it is our hope that President Obama will prove to be a strong supporter of the sector. He has a personal history of active involvement in charitable activity. Examples include:

- A history of community organizing in Chicago directing a nonprofit called the Developing Communities Project, which works with churches to aid low-income neighborhoods.
- Heading the Illinois Project Vote which helped register black and low-income voters in Cook County.
- Serving as a board member of the Joyce Foundation and of the Woods Fund of Chicago; the former supports the development of policies to improve the quality of life in the Great Lakes region and nationally, while the latter works to increase opportunities for disadvantaged people and communities in the metropolitan area.
- Chaired the board of the Chicago Annenberg Challenge, a project to improve public schools.
- Together with Michelle, the Obamas donated about 14% of their gross income in 2010, and 22% in 2011, figures significantly higher than the national average.

Against this background, President Obama will undoubtedly remain a strong advocate for the nonprofit sector. However, the process of avoiding the fiscal cliff has raised a new concern about the possibility of greater limitations on the charitable deduction for donations, particularly from higher income individuals, traditionally an important source of support for nonprofits.

While the deal avoided extreme limitations on charitable deductions, and does not place a flat percentage cap on charitable giving, it does call for a reinstatement of an old law known as the “Pease limitation”. Named after Rep. Donald Pease (D.Ohio), this law limits itemized deductions for higher-income Americans. i.e. individuals earning at least $250,000, and married couples with incomes of at least $300,000. The limit reduces charitable and other itemized deductions by up to 3%.

Important nonprofit advocates like the Independent Sector, a coalition of about 600 charities and foundations, expressed concern about this bill. The IS President, Diana Aviv, commented that “The big question for us now is, if we are [also] increasing rates on folks … does the combination create a greater disincentive for people to give?” Religious organizations expressed strong concern, with Southern Baptist church-state expert Richard Land stating: “This would be catastrophic in its impact, particularly on those large gifts that many religious organizations, colleges, universities and ministries, as well as churches, depend upon for continuing operations…” Ari Fleisher, former press secretary to President George W. Bush, was quoted in The Wall Street Journal: “I increased donations to charities in 2012. This deal limits my deductions so I, and many others, will likely donate less in 2013.”

On the other hand, tax and financial planning expert Bernie Kent, stated that the Pease amendment, although couched as a limitation on itemized deductions, in fact had little to do with itemized deductions since it was based on income earned, not deductions taken. He suggests that tax professionals and charitable giving professionals clearly explain this concept to donors to soothe their fears.

We will continue to monitor the talks in Washington on the interrelated matters of tax policy, the debt ceiling, and the fiscal deficit. The fiscal cliff deal has only stalled the problems temporarily and we must hope that President Obama and the Congress can reach an agreement that will not only prevent the collapse of the economy, but will also encourage our nation’s long tradition of private philanthropic support for our charitable sector.

For more information regarding these issues, refer to the links below:

http://philanthropy.com/article/Barack-Obamathe-Nonprofit/134094/

http://www.independentsector.org/charitable_deduction?s=fiscal%20cliff

http://erlc.com/article/for-non-profits-fiscal-cliff-bill-was-mixed-bag/

http://www.forbes.com/sites/berniekent/2013/01/07/impact-of-the-fiscal-cliff-tax-legislation-on-charitable-giving-in-2013/

Leo Cruz, Deputy Director
Nonprofit Sector Resource Institute
Seton Hall University

When my wife was elected to the board of directors of the American Contract Bridge League (ACBL), I could not have imagined that I would get to witness her participation in an outstanding example of effective nonprofit strategic planning.

I have long urged the nonprofits I counsel to commit to developing a strategic plan and planning process, often citing the quote, “If you don’t know where you are going, any road will get you there.” But for a great many organizations, the reality is that the strategic plan, if one is developed at all, winds up collecting dust.

A few rules that I consider to be golden rules of effective planning are 1) leadership from the top is crucial, 2) the relative roles and responsibilities of key stakeholders – particularly the board and staff – must be clearly defined, 3) the “doers” – i.e. those who will be charged with plan implementation – must be engaged and must “buy-in” to the process, and 4) there must be well defined benchmarks so that progress against goals can be tracked, and goals can be regularly updated as appropriate.

I would have guessed that the ACBL would find it difficult to carry out an effective planning process. The board is geographically dispersed, comprising representatives from 25 districts around the country, who typically see each other just three times a year at board meetings, and who are often inclined to think first about what is good for their district and only secondarily about what is good for the ACBL; board members are bridge enthusiasts who are not necessarily knowledgeable about effective nonprofit governance (they were not uniformly enthusiastic about the news they would be undertaking another planning project); and as a bridge player myself, I can say with confidence that we can be a testy, argumentative bunch.

Yet a number of factors combined to make the ACBL process a good one:

 Effective Board Leadership. The woman elected to be president of the board for 2012 – the ACBL president serves only a one-year term – is a believer in the importance of planning, and had prior experience in planning with other nonprofits. She committed her year as president to the development of a strategic plan that would not end up sitting on the shelf.
 Effective Staff Leadership. In late 2011, the ACBL hired a new CEO who welcomed the opportunity to work with the board on a process that would help focus his efforts. In turn, he actively engaged his staff in the planning process. Prior to the November board meeting, he had the staff prepare presentations for the board and put them through test runs with other staffers simulating the role of the board. Not only did this process substantially enhance the staff’s enthusiasm for the plan, and their capacity to articulate their respective roles in the implementation process, it also culminated in direct interaction with the board, and the opportunity to receive first-hand feedback. And board members valued the opportunity to interact directly with staff.
 Effective Board/Staff Cooperation. The board president and CEO formed a strategic planning task force that included a) three board members, including the president, and b) three staff members, the CEO plus one more from headquarters and one from the field; input from the field was critical as this group of employees had been left out too often in the past. In addition, a planning consultant was hired to help facilitate the process; having an objective listener was critical to the success of the process. As a result of the work of this task force, the full board saw substantive progress from one meeting to the next.
 Definition of Key Strategic Priorities. The planning process led to the definition of five key strategic priorities that were approved as the basis upon which to establish action plans and accountabilities.
 Financial Support For The Action Plans. Management identified nearly a half million dollars in current expenses that were reallocated toward the support of the strategic initiatives.
 Measureable Goals. Benchmarks were established and agreed upon. These will provide the basis on which to track progress in 2013 and beyond.
 Continuity. The man elected to be board president for 2013 has publicly committed himself to the plan, and the CEO remains committed.

Effective leadership from the top, and the definition of a process that ensures the plan will be regularly revisited and revised as appropriate based on progress against goals, to my mind these are key hallmarks of the kind of planning process that “works.”

Personally, I am looking forward to my wife’s reports during 2013 on the progress of ACBL, and on the role of the strategic plan in that progress. Based on all that has transpired to this point, I am optimistic I will hear that the organization is doing very well.

Barkley Calkins, Director
Nonprofit Sector Resource Institute
Seton Hall University

The Supreme Court’s landmark Citizens United decision in 2010 held that the portions of the McCain Feingold campaign reform act that prevented corporations and unions from making “electioneering communications” within sixty days of an election violated their right of free speech. This has opened the door to a flood of money to the so-called “Super PACs”, and to nonprofits organized as “social welfare” organizations under section 501c4 of the IRS code. It threatens to corrupt the campaigning process by effectively circumventing all campaign finance restrictions. It also threatens to tarnish the image of the 501c3 organizations that operate exclusively for charitable purposes.

The Super PACs, or Political Action Committees, are able to contribute directly to campaigns, but are also able to make “independent expenditures” of money for campaign ads which the candidates can justifiably say they had nothing to do with. Attack ads in the current presidential campaign have become especially vicious against both candidates, and often include charges that lack credibility.

However, the Super PACs have one disadvantage: they must identify their donors. Thus, a significant new player has now emerged, the so-called “social welfare” organizations. Like the Super PACs, these 501c4s also make independent campaign expenditures, but do not have to disclose their donors. As a result, they are now substantially outspending the Super PACs roughly three to two, $95 million to $65 million in the 2010 Congressional elections.

In an article published in the Chronicle on Philanthropy, Larry Ottinger, a civil rights lawyer, comments on how 501c4 organizations are straying from their original purpose, stating “Under the federal tax code, such advocacy groups must devote most of their work to promoting the social welfare, not to activities designed to promote or defeat specific political candidates or parties. However, these partisan nonprofits are testing the limits of the law. The IRS, sensitive to political pressure and not quick to confront controversial matters, has been proceeding cautiously.”

He goes on to say that “Misuse of 501c4 groups by political operatives, regardless of political or ideological affiliation, tarnishes the image of all nonprofits, but especially the country’s more than 110,000 social-welfare groups that are advocating on issues like education, health, and human rights.”

This flow of essentially unregulated campaign finance money represents a major threat to the integrity of the campaigning process. While “fact checkers” may have some influence over information flowing directly from the candidates, the Super PACs and social welfare organizations have much more latitude to say whatever they care to.

And those of us who are concerned about the image of the charitable 501c3 organizations cannot help but worry about the possibility that 501c4s, with their new found wealth and status, may tarnish the image of the whole nonprofit sector, the charities included.

Are the actions of the 501c4 organizations harmful and detrimental to the reputation of 501c3 organizations? For readers interested in looking in to this question in more depth, the following are several helpful links:

http://funderscommittee.org/resource/charities_must_take_a_stand_on_partisan_groups_masquerading_as_nonprofits

http://www.demos.org/publication/million-dollar-megaphones-super-pacs-and-unlimited-outside-spending-2012-elections

http://www.nonprofitquarterly.org/policysocial-context/20543-political-501c4s-outspend-super-pacs.html

We will welcome comments from our readers. Could the actions of the 501c4 social welfare organizations adversely impact the image and the tax preferences for the 501c3s? If so, is it time for you to urge your advocacy groups to weigh in on the issue?

Leonardo Cruz, Deputy Director
Nonprofit Sector Resource Institute
Seton Hall University

Timothy (Tim) Walsh, a graduate student of nonprofit management here at Seton Hall, has worked with me over the past year as Deputy Director of the Nonprofit Sector Resource Institute. He contributed this article based on a reading in one of his classes.

Barkley Calkins, Director
Nonprofit Sector Resource Institute

An article in the Nonprofit Quarterly last year inspired me to write on the threat posed to our charitable tax exemption by charities that behave uncharitably. The article, entitled Stretching the Idea of Charity, described Dunwoody Village, a continuing care retirement community in Pennsylvania. Local Township and school officials had challenged the Dunwoody claim of being a “purely public charity” since 1) it charged huge entrance fees, in some cases up to $400,000, and 2) it catered to the affluent customer, boasting a masseur, beauty salon and luxurious accommodations.

A judge subsequently upheld the charge by school and government officials that the organization should not receive tax breaks since only ten of its 425 residents receive any financial aid, and their property is valued at $43.2 million. At stake was about $2 million in tax dollars that can now be used for the local municipality and school.

The judge’s ruling was clearly appropriate, since it was evident Dunwoody was abusing the charitable exemption privilege. They were catering to the wealthy and charging exorbitant fees that enabled them to pay higher salaries and invest even more money into the retirement community to attract even more affluent individuals.

The charitable tax-exempt privilege is intended to benefit organizations that serve the general public, particularly the most vulnerable populations.

Other kinds of nonprofits face similar challenges. The Y that uses its facilities to compete with for-profit fitness centers, the nonprofit hospital with special accommodations for the wealthy, etc. While it is appropriate – even necessary – for nonprofits to look for ways to diversify their funding through earned income, they potentially threaten the whole tax exempt privilege when they cross over in to commercial endeavours on a substantial scale.

Unfortunately, the actions of one organization can impact the whole sector. In order to ensure that the actions of your organization do not threaten the favorable tax status of charities, here are a few things to be considered:

1. Is my organization charitable? The definition of charitable can vary state to state, but essentially you need to ask if your organization is assisting a population in need of assistance
2. Are the programs offered by my organization available to everyone that needs the service, regardless of social status?
3. Does my tax-exempt status give my organization an unfair advantage over similar organizations in the for-profit sector?

One of the important ways our nation sustains its long tradition of encouraging and supporting “organized neighborliness” is through tax preferences for charitable activity. It behooves all of us who benefit from those tax preferences to behave in a manner that does not jeopardize them.

Timothy Walsh, Deputy Director
Nonprofit Sector Resource Institute

Last March, the Nonprofit Sector Resource Institute hosted the “IRS Nonprofit Workshop for Small and Medium Sized Charities.” This was a unique opportunity for representatives of smaller nonprofits to hear directly from Exempt Organizations Tax Law Specialists from the IRS, and to interact with them through Q&A. The event was extremely well received and we hope to offer the workshop again in the future.

Here, I would like to discuss the most important lessons drawn from the workshop.

1. The IRS is NOT your enemy.
Despite popular belief, the IRS is here to help nonprofit organizations. Tax-exempt status is a benefit created as an incentive for the formation of nonprofit organizations. Excluding cases of fraud or malfeasance, the IRS wants to work with you.

2. Ignorance of the law guiding tax-exempt status is not a defense
You need to know the laws governing your tax-exempt status. Visit the website and learn what you need to do (www.irs.gov/eo). Also, sign up for the EO Newsletter by clicking on the link EO Newsletter on the left side. Both of these tools will be helpful at no cost.

3. File a 990, 990N or 990 EZ every year
Which one you need to file depends on the income of your organization. However, if you do not file for three years in a row YOU WILL lose tax-exempt status automatically. There is a way to re-file for tax-exempt status but it is very difficult and you will have to file tax returns and pay taxes for the period for which you lost tax-exempt status.

4. Rulings are subjective.
There were two presenters at the workshop and even they disagreed on how they might rule given certain scenarios. Therefore, you should interpret the regulations conservatively, and stay away from activities that could be considered questionable.

5. You must report Unrelated Business Income
Even though an organization is tax-exempt, it still may be responsible to pay taxes on any Unrelated Business Income. Unrelated Business Income is any income from a trade or organization, regularly carried on, that is not substantially related to the charitable, educational or other purpose that is the basis of the organizations exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file a 990-T.

Tim Walsh, Deputy Director
Nonprofit Sector Resource Institute

For my NJ-based, nonprofit readers, if you have not yet done so, it will be well worth your while to visit the New Jersey NonProfit Information Center; the portal is at http://www.state.nj.us/state/nonprofit.html. The site is intended as a one-stop shop for nonprofits seeking to use funding sources and volunteer opportunities around the State.

In 2011, Governor Christie signed a law requiring the Department of State to maintain, in a single, accessible location, a directory of State departments and agencies that provide resources to assist nonprofits in their daily operations. In addition to information on the funding opportunities and criteria from various State departments and agencies, the site also includes links to volunteer centers, and other support organizations that may be helpful to visitors to the site.

It is far-sighted of the State to put this site together. I will be interested in hearing from readers who visit the site what kind of experience they have.

Barkley Calkins, Director
Nonprofit Sector Resource Institute
Seton Hall University

There continues to be extensive media coverage of the public relations debacle resulting from the Susan G. Komen for the Cure’s handling of its decisions, first to end funding for Planned Parenthood’s breast cancer screening program, and then to reverse that decision. The news broke at the end of January, and media coverage since then has been intense; a key architect of the original decision has resigned, and there have been calls for the resignation of Nancy Goodman Brinker, Komen’s founder and CEO.

The capacity of Komen to effectively and powerfully communicate its message had never previously been in doubt. Its pink ribbon breast cancer awareness program is a powerful – almost omnipresent – brand; and the constituency it has built over the years is extensive and passionate. For such a marketing powerhouse to stumble so badly is surprising, to put it mildly.

With emotions on the matter still running high, perhaps it is premature to try to draw lessons from the experience, but let me make bold to draw a few anyway:

1. It is impossible to overstate the power of social media to consolidate and channel populist sentiment on ANY issue. The speed with which an intense negative reaction came together in this case was astounding, and social media was the key.
2. Be careful who you hire. All reports suggest that the original decision not to fund Planned Parenthood was a direct result of the hiring of Karen Handel, a former gubernatorial candidate from Georgia and an outspoken anti-abortionist, as senior vice president for public policy. As a recognized charitable organization, Komen should have been more attuned to the issues inherent in such a politically charged hire.
3. Establish clear, rational policy guidelines and develop broad organizational “buy-in.” Komen explained its original PP decision as resulting from a newly established policy guideline prohibiting the funding of organizations under government investigation. This policy effectively ceded a degree of control of funding decisions to government, not a recommended course of action for a private sector funder. And the real or threatened resignations of a number of key members of the board and staff made it clear the policy had not come close to achieving broad organizational “buy-in.”
4. Think long term. Some knowledgeable observers felt the PP decision reflected a short-sighted view that it would alleviate pressure on Komen from the anti-abortion community.
5. Strive for honesty, clarity and consistency of message in public pronouncements. Once the news broke and the public outrage became clear, subsequent interviews and public statements by various representatives of Komen were NOT models of clarity or consistency of message.

I know many people are following this story with interest. I will welcome comments from my readers.

Barkley Calkins, Director
Nonprofit Sector Resource Institute
Seton Hall University

This post was submitted by recent MPA graduate Ryan Ouellette who, along with three other graduate students of nonprofit management from Seton Hall, is currently in Iraqi-Kurdistan, working with the University of Duhok on a new NGO management training program. Building the capacity of the NGO sector there is a key objective of a US State Department funded initiative called the Strategic Dialogue with Civil Society.

When the trip to Kurdistan first began I had no idea what to expect. I didn’t know whether we would see massive international NGOs accustomed to working with the UN, or if NGOs were really just getting started. The reality is more towards the latter, but there is a strong base to build from. The KRG Government funds all local NGOs, typically about $1,000-$2,000 USD a month. This enables NGOs to pay for rent, office supplies, small staff salaries, and some program expenses as well. In the United States this may not even cover rent, but in Kurdistan it goes a long way. In some ways, this support is a good thing. It encourages the formulation of new NGOs and guarantees that they will at least have some money to operate as they build the organization from the ground up. Contrarily, we find that this also hampers the NGOs from finding ways to become self sustainable. Many of them indicated that their only source of funding was the KRG Government and without it they would have to close their doors. It is clear that both the NGO sector as well as the KRG Government have to continue to find ways to work together and create quality legislation that promotes NGO development, but also holds the NGOs accountable to measurable results and promotes long term financial independence.

Through 17 total site visits we also found that human rights, women’s rights, and children’s rights were the “hot” topics. At least 9 of the 17 organizations we visited worked within these areas. A consolidation of these organizations would probably be beneficial. We also got the impression that these organizations tended to be the most prone to “mission creep.” They also tended to be involved in elections, projects for the elderly, etc. One aspect of their NGO management that needs further development is clearly defining a mission and sticking to it. Other potential areas of need, from our perspective, are: volunteer recruitment and management (there were a surprising number of volunteers and the potential for much more), financial management and control (any time we asked a numbers question it seemed far too difficult to provide a clear picture of the organization’s financial health), board development (some organization’s had them, others did not), and fundraising (not only writing international grant proposals, but also cultivating a local donor base).

The first training course, now completed, was a strong first step towards building NGO capacity in Kurdistan. There are still about 75 NGOs left in Kurdistan that we need to meet with, and we will utilize the feedback gained from this trip to further improve upon our trainings for these next groups. We will also use this to develop an NGO Resource Institute which will: provide individual consultations with NGOs, edit grant proposals written in English, provide additional trainings on specific topics of interest, serve as a resource center for information on NGO management, and liaise with American NGOs to develop possible partnerships. Although we were only in Kurdistan for one month, we laid a strong groundwork for a lasting project that truly has the potential to develop the NGO sector in Kurdistan in a meaningful way.

This post was submitted by recent MPA graduate Ryan Ouellette who, along with three other graduate students of nonprofit management from Seton Hall, is currently in Iraqi-Kurdistan, working with the University of Duhok on a new NGO management training program. Building the capacity of the NGO sector there is a key objective of a US State Department funded initiative called the Strategic Dialogue with Civil Society.

After a few weeks here in Kurdistan we are now comfortably settled into our jobs. Our primary role here is to serve as resources if additional information is needed during the aforementioned training courses, but we are also visiting local NGOs to meet with them one on one. The primary goal of these meetings are to gain a clearer picture of the NGO sector in Kurdistan, get an idea of what types of NGOs are working there, and what their biggest organizational challenges are. This information will then be utilized to present reports on our findings, and also to start designing a longer term partnership in the region: an NGO Resource Institute.

Thus far we have conducted ten visits with local NGOs and I couldn’t have imagined them going any better. They were not only welcoming, but were incredibly open to our questions. Interestingly enough, there seems to be a greater sense of trust for foreign assistance than there is from local NGO leaders. From our vantage point this made our original visits much easier as they were eager to share information and try to learn as much as possible from us. However, building mutual trust, understanding, and cooperation with other local NGOs is an issue that certainly needs to be worked on.

We start off each interview discussing the sector in general. This includes impressions of the NGOs in the area, the role of government, strengths and weaknesses, etc. This helps to give us an idea of what shape the NGO Institute will take if we do in fact build a permanent training center in Kurdistan. After we have gained a clear understanding of their beliefs on the NGOs in Kurdistan, we move into the details of their organization. This includes mission statement, number of staff, annual budget size, biggest challenges, collaborations, strategic plan, etc. In a nutshell, the rest of the interview resembles an initial consultation visit: we learn as much as possible about what the organization does so that we can brainstorm ways to make it better.

After we have completed all of the interviews we will be putting together an outline of our findings. This will be used for an academic research paper, but also to help design the future NGO Institute. The NSRI model at Seton Hall is highly successful and will serve as a basic framework; however, the services offered in Kurdistan will be specifically tailored to the local area. Given the willingness to learn and the overall feeling of excitement exhibited by the NGO leaders we have met with, I believe that we truly can help to build civil society here in Kurdistan.