Rick Cohen’s Predictions for 2013
Yogi Berra’s insight that “the future ain’t what it used to be” goes double for 2013 as the nation peers over the edge of the fiscal cliff. As this is being written, negotiations between President Obama and Speaker Boehner imploded, primarily because the Speaker couldn’t corral his recalcitrant Tea Party wing. Be assured that no matter what happens, the nation will hit future cliffs, with reverberations that will roil society—and consequently philanthropy. Assuming more cliffs are ahead, foundations have much to anticipate in 2013 and beyond. Here are ten guesses as to what 2013 portends for foundations.
Fracturing of the charitable coalition: Despite occasional voices suggesting that President Obama’s proposed 28 percent deductibility cap for charitable and other itemized deductions was a decent idea, most charities have organized every year to defeat the President’s proposal either that the cap was devastating in and of itself or that it might lead to efforts to eliminate the century-old charitable deduction altogether. Leading into the fiscal cliff debate, the solid wall of charitable defenders has begun to fracture, not because of a belief in the deduction. Partly, it is because of the tension of being seen as going to the mat to save wealthy donors three or seven cents of tax savings on the dollar as though the wealthy somehow can’t absorb that. And partly, the fracturing is happening due to the increasingly vocal message of some charitable deduction defenders that it’s much better for nonprofits and society to save a dollar of charitable deductions than a dollar of government programs, a message promoted by some religious charities, even promoting the notion that a dollar of charitable giving to religious groups was more valuable somehow than a dollar of charitable giving to secular nonprofits. National trade associations that have broadened their message on the deduction to include even tepid support for higher tax rates for the wealthy have been sharply criticized for their apostasy. That fissure will increase rather than decrease in 2013. Foundations are going to be called to account, not just on the deduction itself, but on where they stand regarding America’s still increasing concentration of wealth.
Make or break federal commitments: The mini-solution to the fiscal cliff is hardly going to protect federal programs from cascading cuts. The concern here is about discretionary domestic spending in areas such as housing, child care, mental health, and virtually every other safety net function addressed by the federal government outside of entitlement programs such as Social Security and Medicare. Four years ago, foundations found President Obama’s new initiatives in social entrepreneurship such as the Promise Neighborhoods program and the Social Innovation Fund exceptionally alluring. Plenty of foundations made big and small commitments to these and other new signature programs of the incoming administration. If this were a normal second term for the administration, this would be a make or break time for these programs, as John C. Ronquillo of DePaul University suggested to us, but these aren’t normal times. The pending sequestration cuts are really cuts upon cuts of domestic programs, unable to keep up with the increasing service demands faced by nonprofits and communities. Foundations will probably continue to hear the siren song of making once new programs work and at the same time face pressures to deal with a safety net that is falling apart. It seems difficult to imagine that foundations can continue to emphasize their investments in President Obama’s four-year old, relatively underfunded social enterprise initiatives when the nation’s historic commitment to the poor are at risk.
Minimal oversight from the IRS: When we asked various smart friends of Nonprofit Quarterly for their predictions for 2013, Char Mollison, a former senior official at the Council on Foundations and Independent Sector, tersely responded, “The IRS will not investigate the political activities of churches.” Our feeling is that the IRS won’t be investigating much of anything in 2013. The Exempt Organizations unit’s staffing is down, while they’ve inherited the huge challenge of monitoring the compliance of nonprofit hospitals with the community hospital benefit requirements of the Affordable Care Act. With the fiscal cliff and continuing budget cuts, it’s unlikely that the IRS will see a Congressional campaign for fully capitalizing the historically undercapitalized EO unit. Perhaps foundations are breathing a sigh of relief, but it’s ill-taken. A strong EO unit undertaking more intensive investigations is to the benefit of the nonprofit and philanthropic sectors. If foundations are truly committed to accountability, they should be speaking out for strengthening the entity charged with providing philanthropic oversight.
Payout pressures again: With foundation endowments having recovered much of their losses from the depths of the Great Recession, there will be pressure on foundation payouts, but from an odd direction. There seems to be a movement building for establishing a minimum mandatory payout rate on donor advised funds, even though at least for the DAFs managed by community foundations and by the big financial firms, average payouts are double or triple the payouts of foundations. Those average payouts may camouflage some individual DAFs that spend next to nothing, but overall, the DAFs get the money out onto the nonprofit street. As the pressures mount on the DAF managers, presumably targeting the big players such as Fidelity and Schwab, they will smartly respond with statistics that show very high payouts and very low administrative overhead. Congress will likely have little appetite for legislating payouts in 2013, but the DAF focus will end up putting private foundations on the defensive to explain why five percent payouts make sense, not just in individual foundation terms when increasingly foundations have living donors, but in philanthropic sector terms, in which new capital flowing into philanthropy more than makes up for any potential declines due to foundations spending above five percent.
More Detroits: Detroit may be the epicenter of municipal fiscal disasters, but there are a number of cities that have declared bankruptcy and others that are all but bankrupt. For many nonprofit watchers, the focus has been on municipal governments attempting to exact payments in lieu of taxes out of nonprofit property owners, generally the larger endowed “eds and meds”, but another dynamic of desperately troubled cities directly involves foundations. In Detroit, as municipal government has withered, handing off municipal functions to be managed by non-local nonprofit agencies, foundations have stepped to the fore individually and as multi-foundation collaboratives to take on functions beyond the capacity of Detroit’s failing governmental apparatus. Particularly notable efforts have addressed job creation, entrepreneurship, public education, and neighborhood land use planning. It hasn’t been without controversy as the participating foundations have faced the duality of being both wanted and at times resented by municipal officials and community-based nonprofits fearing a loss of power and influence over major decisions. Despite the complaints, Detroit has been the beneficiary of extra millions of grant dollars and foundation technical expertise. Although only a couple of metropolitan areas can boast of a collection like Kresge, Skillman, and Kellogg, it is hard to imagine that other cities won’t try to replicate the model to tap their most proximate institutional foundations for more than typical generosity.
There’s no question that any of these predictions could be undone by the turn of events when President Obama and Speaker Boehner finally go face-to-face and trade proposals to solve or at least buy some time to avoid the fiscal cliff. Half of the predictions are mixes of predictions and hope, the latter based on a faith that whatever their flaws and weaknesses, foundations as a sector will find their way toward doing the right thing in 2013.