Challenge and Opportunity for Michigan Nonprofits Part 2 of 5

Yesterday we began discussing Michigan’s structural budget deficit and how it may affect large numbers of Michigan’s nonprofit organizations profoundly in the next two decades.

….Consequently, the financial resources left over after prisons and Medicaid take their share is growing smaller and smaller with each round of budget-building. And it’s only going to get worse. We are now seeing substantial cuts to the arts and cultural activities and for education; human services and healthcare are next. All nonprofits who have been receiving anything in the way of financial backing from state programs and agencies over recent years will be affected before long.

The nonprofits’ share of state funding will be dropping at an increasing rate over the next decade, so that by 2020 there may be as much as a 25% decrease in the amount of state aid coming to even the largest arts, education, human services and healthcare organizations. And that’s going to hurt the budgets of a growing number of the state’s nearly 30,000 nonprofits.

2. Complicating the picture is the fact that starting in the 1980s with Ronald Reagan’s presidency, nonprofit organizations began enjoying a blossoming of media support and political goodwill the likes of which we’ve never been seen before. The Republicans fell in love with nonprofits.

Why? Because Regan perceived that nonprofits could provide many kinds of service to the American people better, cheaper and more efficiently than government agencies could do. One of the cornerstones of “Reaganomics” was that if government supported the expansion of the voluntary sector, then government could be significantly downsized, and that would clear the way for extremely generous tax cuts for the top ten percent of taxpayers, the most wealthy individuals and corporations.

3. Additionally, in the 1960s and 1970s the 501-c-3 IRS designation had been very difficult to obtain; the process took sometimes two to three years to complete; budding nonprofits had to jump through a plethora of regulation-like hurdles. But since the 1980s the hurdles have come down and now just about anyone can get a charitable organization designation in a few months.

Both Bush administrations have continued the Reagan emphasis on nonprofits taking over public sector responsibility: witness the “1000 Points of Light” and similar programs; witness the way a behemoth like HUD, for example, has practically disappeared from the scene over the past two decades; witness the increasing emphasis on “privatization” of services and the recent focus on “faith-based” institutions What’s happening is that the government is getting out of the charity business and is encouraging nonprofits to take on those responsibilities. That frees government to cut taxes or go to war, whichever fits the political agenda of the moment.

One of the results of this public policy move on the part of Republicans is that nationally there are 41,000 new 501-c-3 charitable organizations coming online each year, and this has been going on for nearly a decade. Michigan’s share of that is just under 1000 new nonprofits every year, and most of those are located in the southeast and western regions of the state. So the competition in the charitable marketplace, which has greatly intensified since the 1980s, will become even more daunting in coming years.

Tomorrow we’ll see how these factors converge on nonprofits.