Bloomington Mayor Gene Winstead
Minneapolis Mayor R.T. Rybak
Saint Paul Mayor Chris Coleman
The leaders of our region’s three largest cities spent three days in Atlanta last week. What were they up to? Did they work hard? Was it a good use of their time? Which of them snored while sleeping on the plane?
As a member of the Inter-City Leadership Visit, in which these city leaders participated, I can report very positively about the mayors’ hard work and about what they and the rest of us learned on this journey to the “capital” of the southeast region of the United States.
Most significantly, we learned first-hand the importance of dealing with issues on a regional basis. Cities, counties, states--while crucial for some administrative purposes--may be in process of becoming almost obsolete within a global marketplace of regions. What does that mean? It means that Atlanta, while important as a city, constitutes only one part of a socially and economically interdependent network of cities and counties that comprise the region of Atlanta.
The local forces that shape Atlanta’s future and its standing in the world derive not just from what happens inside the city’s boundaries, but from events and activities throughout the neighboring cities and counties for 100 miles. For example, the workforce is a regional workforce; large corporations deciding whether to move to, or do business in, Atlanta look at the region as a whole. Transportation is a regional issue. Infrastructure and quality of life issues, such as water resources and air quality, require regional solutions as individual municipalities have little or no capacity to address them on their own.
The same applies to our metropolitan Twin Cities region. Whether we like it or not, Scott, Hennepin, and Washington Counties share many common issues and must address them together. Saint Paul, Bloomington, and Minneapolis can go it alone on some things, but they have to collaborate on others. Our conversations with the school district and business leaders, for example, prompted several of us to consider whether the Minneapolis and Saint Paul school districts need to collaborate more to increase their internal effectiveness and decrease expenses and to bring more funding into the region from foundations.
Some things we learned:
Atlanta points to several events which had significant positive impacts on its regional development:
- The location of Hartsfield-Jackson Atlanta International Airport
- The Democratic National Convention in 1988
- The Olympics in 1996
The first of these created a transportation conduit which facilitated travel to and from Atlanta, providing ease of access that directly supported the growth of Delta and the related airline industry and indirectly supported the growth of many other businesses that chose to locate in the Atlanta region because of its accessibility. The other two events raised the profile of Atlanta, making it more respected and prominent within the U.S. and around the world.
We probably will not sponsor the Olympics in the near future, but we do have a convenient, modern airport, and we just hosted the Republican National Convention. That’s two of the three ingredients. I returned from Atlanta with the feeling that this Twin Cities region has a lot of potential – if we can get our act together to promote regional thinking and regional ownership of the major issues we face, along with regional action to address those issues.
We learned more in Atlanta – about how that region has dealt with race issues, how they transformed their school system from dysfunctional to functional, how business leaders play major roles. Subjects for future blogs.
Who snored on the plane? Fortunately, not the pilot, but I won’t say more than that!
Saturday, October 04, 2008
Hotlanta and Our Mayors - Anything Learned?
Tuesday, August 26, 2008
Vote for the low-fat President!
As you reflect on the events in Denver and Saint Paul, you will make the decision to support one candidate or the other. Over the coming weeks, you will hear commentaries from news analysts and pundits about the fitness of nominees for the Presidency and you will thoughtfully consider who endorses whom.
To assist you, I provide my endorsement – who I think should serve as the next President.
It is the “low-fat, total coverage, high-achievement, invest early” candidate.
Low-fat. The data are compelling. The U.S., and some of the other developed countries, face a public health issue like never before. The obesity rate among U.S. adults has more than doubled since 1990 to 25 percent. Diabetes, the sixth leading cause of death, is also rising quickly. Obesity and diabetes cost money and lives. All of us suffer, if not directly, then indirectly through the extra expenses we pay for health care and health insurance and the extra pain we endure because of loved ones who suffer chronic illnesses and premature death. Chronic diseases resulting from obesity are largely preventable. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
Total coverage. I’ve lived and worked in countries with universal health coverage for all of their citizens. The United States, with all its wealth, has no excuse to allow its residents to lack health insurance. Getting everyone covered requires cutting through political and economic obstacles, but it can happen with bold, enlightened leadership. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
High achievement. Skills we need to sustain a strong workforce exist in too short supply among our younger population. In Minnesota,, more than 20 percent of third graders fall below reading proficiency standards, and a whopping 68 percent of eleventh graders fail to meet proficiency standards in math. Many factors have produced this situation; solutions may seem daunting. Nonetheless, we must start by working with school districts, teacher education programs and teacher unions, families, and nonprofit organizations, within our communities, if we want to move educational achievement for all children in a more positive direction. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
Invest early. (This does not mean spend more money.) We must focus attention on how to support the best possible growth and development for children. Everything I’ve mentioned above will improve if we start early. Better health early in life sets children on a lifelong path of better health. Good health care early in life prevents problems and reduces costs. High achievement in the early years increases the likelihood of continued achievement, which extends beyond a single individual to later generations. The economic argument, the return on investment for providing good child care (by families themselves or by others), health services, and high quality education to young people becomes a more convincing argument every day as we see new research evidence. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
I hope that you use these criteria, along with other criteria that you consider important, to assess the candidates – not just for President, but in any races in your district: Senate; House; etc. Now is the time to put our candidates on the line for commitments which transcend party politics and make good sense if we want to address some of the most significant challenges we face.
To assist you, I provide my endorsement – who I think should serve as the next President.
It is the “low-fat, total coverage, high-achievement, invest early” candidate.
Low-fat. The data are compelling. The U.S., and some of the other developed countries, face a public health issue like never before. The obesity rate among U.S. adults has more than doubled since 1990 to 25 percent. Diabetes, the sixth leading cause of death, is also rising quickly. Obesity and diabetes cost money and lives. All of us suffer, if not directly, then indirectly through the extra expenses we pay for health care and health insurance and the extra pain we endure because of loved ones who suffer chronic illnesses and premature death. Chronic diseases resulting from obesity are largely preventable. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
Total coverage. I’ve lived and worked in countries with universal health coverage for all of their citizens. The United States, with all its wealth, has no excuse to allow its residents to lack health insurance. Getting everyone covered requires cutting through political and economic obstacles, but it can happen with bold, enlightened leadership. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
High achievement. Skills we need to sustain a strong workforce exist in too short supply among our younger population. In Minnesota,, more than 20 percent of third graders fall below reading proficiency standards, and a whopping 68 percent of eleventh graders fail to meet proficiency standards in math. Many factors have produced this situation; solutions may seem daunting. Nonetheless, we must start by working with school districts, teacher education programs and teacher unions, families, and nonprofit organizations, within our communities, if we want to move educational achievement for all children in a more positive direction. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
Invest early. (This does not mean spend more money.) We must focus attention on how to support the best possible growth and development for children. Everything I’ve mentioned above will improve if we start early. Better health early in life sets children on a lifelong path of better health. Good health care early in life prevents problems and reduces costs. High achievement in the early years increases the likelihood of continued achievement, which extends beyond a single individual to later generations. The economic argument, the return on investment for providing good child care (by families themselves or by others), health services, and high quality education to young people becomes a more convincing argument every day as we see new research evidence. Which candidates know what we need to do and have made a realistic, believable commitment to doing it?
I hope that you use these criteria, along with other criteria that you consider important, to assess the candidates – not just for President, but in any races in your district: Senate; House; etc. Now is the time to put our candidates on the line for commitments which transcend party politics and make good sense if we want to address some of the most significant challenges we face.
Friday, August 01, 2008
Return on Investment (part 2)
I mentioned earlier our "Return on Investment" conference. Here's a bit more.
Michael Stegman, of the MacArthur Foundation, spoke on “The Power of Measuring Social Benefits” and advocated the development of a culture of evidence-based decision making for all of our policies and programs. He outlined the work of the John D. and Catherine T. MacArthur Foundation and informed the group of their interest in potentially working with Wilder Research on a return-on-investment study of supportive housing programs. (We are discussing with MacArthur a study which will develop a framework for return-on-investment analysis of different types of supportive housing programs and which will pioneer the use of public agency data for such an analysis. Hopefully, something will develop!)
Steve Aos, of the Washington State Institute for Public Policy, described the system used in Washington State to assist state legislators to make the most informed decisions possible, based on current understanding of the effectiveness of specific programs and policies. At the request of legislators, his organization creates “apples to apples” comparisons of different programs and policies, so that legislators can apply their intuition and their perspectives to meaningful information when casting their votes. To carry out their work on a specific program, the WSIPP identifies all studies of that program; they determine whether these studies meet standards of quality; if they do, they combine the results of these studies (using “meta-analytic” techniques) to provide a picture of what the research says.
He took the example of the decision whether to spend more money to decrease class sizes in elementary, junior high, and high schools, as a means to improve academic performance. As you will see from Steve Aos’ slides on our website, the results disclose a very interesting phenomenon: Reduction of class size seems to have positive effects in grades kindergarten through 2; it has positive, though less strong, effects in grades 3 through 6. For junior high (7-8) and senior high (9-12), class size reduction seems to produce no effect. In fact, a glance at one of his charts might prompt you to ask whether additional research might reveal that reducing class sizes in junior high actually has a negative effect on student achievement! (Note: I am not saying it has that negative effect. I’m saying you might wonder whether it does when you see the chart.)
John Roman, of The Urban Institute, offered an overview of ROI analysis of crime control programs and policies. If you have any interest in this topic, you will find his presentation very valuable. He pointed out that DNA analysis may revolutionize policing, because of its substantial return on investment. In addition, he alerted conference participants to the practical dilemmas which we can face in attempting to make policy decisions which may have long term positive consequences, but at a short term increase in costs. It’s often the case with crime control programs, for example, that they produce an immediate short term social return, but they increase costs. Cost reduction may not occur for a number of years. In the meanwhile, somebody (typically taxpayers) must pay those costs.
Christopher King, of the Ray Marshall Center of the LBJ School of Public Affairs at the University of Texas at Austin , described ROI analyses of workforce programs in Texas. He demonstrated the likely long-term benefit of workforce services and showed how we can test to see whether certain types of programs are more likely to produce those long-term benefits.
Susan Urahn, of the Pew Center for the States, alerted us to the practical steps we need to take to introduce return-on-investment studies (or more broadly, any sort of good research) into policy-making. It is clearly a process that requires engagement of policy makers and representatives of constituent groups over the long term; it’s not simply a matter of doing research and issuing a report.
Susan Urahn surprised many members of the audience with a graph which showed that, by the year 2024, total mandatory spending will exhaust all Federal revenue sources. That is, spending on items such as Social Security, Medicare/Medicaid, other mandatory expenditures, and national debt payments will completely consume the money that the government takes in. Nothing will remain for anything else. The complete solution to that problem, assuming her numbers are correct, will require more than wise spending, but the problem creates all the more need for good return-on-investment studies.
Today’s taxpayers, policymakers, philanthropists, and all of us who care about the future of our communities need return-on-investment information. Limited resources compel us to make wise decisions with the highest likelihood of impact. Not every expenditure can be rated for its return on investment, but many can. We need to do so, and we look forward to working with others to accomplish it!
I encourage you to look at the videos and slide presentations from our conference on our website: www.wilderresearch.org
Michael Stegman, of the MacArthur Foundation, spoke on “The Power of Measuring Social Benefits” and advocated the development of a culture of evidence-based decision making for all of our policies and programs. He outlined the work of the John D. and Catherine T. MacArthur Foundation and informed the group of their interest in potentially working with Wilder Research on a return-on-investment study of supportive housing programs. (We are discussing with MacArthur a study which will develop a framework for return-on-investment analysis of different types of supportive housing programs and which will pioneer the use of public agency data for such an analysis. Hopefully, something will develop!)
Steve Aos, of the Washington State Institute for Public Policy, described the system used in Washington State to assist state legislators to make the most informed decisions possible, based on current understanding of the effectiveness of specific programs and policies. At the request of legislators, his organization creates “apples to apples” comparisons of different programs and policies, so that legislators can apply their intuition and their perspectives to meaningful information when casting their votes. To carry out their work on a specific program, the WSIPP identifies all studies of that program; they determine whether these studies meet standards of quality; if they do, they combine the results of these studies (using “meta-analytic” techniques) to provide a picture of what the research says.
He took the example of the decision whether to spend more money to decrease class sizes in elementary, junior high, and high schools, as a means to improve academic performance. As you will see from Steve Aos’ slides on our website, the results disclose a very interesting phenomenon: Reduction of class size seems to have positive effects in grades kindergarten through 2; it has positive, though less strong, effects in grades 3 through 6. For junior high (7-8) and senior high (9-12), class size reduction seems to produce no effect. In fact, a glance at one of his charts might prompt you to ask whether additional research might reveal that reducing class sizes in junior high actually has a negative effect on student achievement! (Note: I am not saying it has that negative effect. I’m saying you might wonder whether it does when you see the chart.)
John Roman, of The Urban Institute, offered an overview of ROI analysis of crime control programs and policies. If you have any interest in this topic, you will find his presentation very valuable. He pointed out that DNA analysis may revolutionize policing, because of its substantial return on investment. In addition, he alerted conference participants to the practical dilemmas which we can face in attempting to make policy decisions which may have long term positive consequences, but at a short term increase in costs. It’s often the case with crime control programs, for example, that they produce an immediate short term social return, but they increase costs. Cost reduction may not occur for a number of years. In the meanwhile, somebody (typically taxpayers) must pay those costs.
Christopher King, of the Ray Marshall Center of the LBJ School of Public Affairs at the University of Texas at Austin , described ROI analyses of workforce programs in Texas. He demonstrated the likely long-term benefit of workforce services and showed how we can test to see whether certain types of programs are more likely to produce those long-term benefits.
Susan Urahn, of the Pew Center for the States, alerted us to the practical steps we need to take to introduce return-on-investment studies (or more broadly, any sort of good research) into policy-making. It is clearly a process that requires engagement of policy makers and representatives of constituent groups over the long term; it’s not simply a matter of doing research and issuing a report.
Susan Urahn surprised many members of the audience with a graph which showed that, by the year 2024, total mandatory spending will exhaust all Federal revenue sources. That is, spending on items such as Social Security, Medicare/Medicaid, other mandatory expenditures, and national debt payments will completely consume the money that the government takes in. Nothing will remain for anything else. The complete solution to that problem, assuming her numbers are correct, will require more than wise spending, but the problem creates all the more need for good return-on-investment studies.
Today’s taxpayers, policymakers, philanthropists, and all of us who care about the future of our communities need return-on-investment information. Limited resources compel us to make wise decisions with the highest likelihood of impact. Not every expenditure can be rated for its return on investment, but many can. We need to do so, and we look forward to working with others to accomplish it!
I encourage you to look at the videos and slide presentations from our conference on our website: www.wilderresearch.org
Wednesday, July 23, 2008
Understanding Whether Social Programs Have Long-Term Value
Does the nonprofit organization where you work, volunteer, or donate your money produce impacts that are worth their costs? Think of any government program – does it achieve results that justify the expenditure of your tax dollars? How would you know? At Wilder Research, we recently had the outstanding opportunity to pursue these questions with a distinguished group of national and local experts and others who joined together for a day of cutting-edge discussions.
Return on investment (ROI) studies can serve as a tool for understanding whether programs that seem to make a difference in the lives of people and communities also have financial benefits that justify continued funding. In an era of scarce resources, such studies can enhance our ability to make wise spending choices. They are not the final word; they do offer more information for our consideration.
Simply stated, ROI studies examine programs (or policies) that have demonstrated positive impacts. They total the costs of a program, estimate the costs potentially averted as a result of that program’s positive impacts, and then compare them. Let’s make up a simple illustration. (Real ROI studies have more complexity; however, this example illustrates the principles involved.)
Let’s say that an after-school tutoring program has demonstrated its effectiveness at reducing the number of children who drop out of school. Based on research, we can estimate the impact that has on reducing delinquency and on improving employment rates for these children who remained in school. Assume the program cost equals $1500 per participant; assume the costs averted by participation equal $9,000 per participant (based on the number who would have entered the juvenile justice system). This program produces a 6 to 1 favorable impact, not even considering the value of enhanced employment for the individual participants and their families, and not to mention the additional financial benefits produced by a better qualified workforce for employers and the community at large.
How might this translate into programs related to issues currently presenting critical challenges to our communities?
The Trust for Health recently reported that spending just a few dollars per person each year on prevention strategies could reduce the incidence of obesity, diabetes, and other diseases and save all of us and our health care system thousands of dollars per person, not to mention the human suffering of chronic illness and lowered life expectancy. As the data show on our Twin Cities Compass web site, obesity trends stand out as some of the most serious, yet largely preventable, health challenges that we face. A dollar spent on prevention can save many, many dollars spent on cure.
Leonard Pitts Jr., in a column this week, challenged all of us to “consider the math.” For some children, a $3,500 investment at age 8 can produce a $60,000 savings 10 years later.
We enjoy the opportunity to collaborate with a network of others from around the nation and the world who seek to bring return-on-investment research into focus, to assist public officials, philanthropists and others who allocate resources to make better decisions – not to mention assisting all of us who volunteer, vote, pay taxes, and make other contributions which we hope will produce as significant a long-term return as possible. We all have limits on our time and our money; it can reassure us to know that we can direct those resources based on the best possible evidence of effectiveness and cost effectiveness.
In a future blog, I’ll say a bit more about some of the key things we learned at last week’s Wilder Research seminar on ROI. If you have thoughts or questions in the meanwhile, please let me know.
Return on investment (ROI) studies can serve as a tool for understanding whether programs that seem to make a difference in the lives of people and communities also have financial benefits that justify continued funding. In an era of scarce resources, such studies can enhance our ability to make wise spending choices. They are not the final word; they do offer more information for our consideration.
Simply stated, ROI studies examine programs (or policies) that have demonstrated positive impacts. They total the costs of a program, estimate the costs potentially averted as a result of that program’s positive impacts, and then compare them. Let’s make up a simple illustration. (Real ROI studies have more complexity; however, this example illustrates the principles involved.)
Let’s say that an after-school tutoring program has demonstrated its effectiveness at reducing the number of children who drop out of school. Based on research, we can estimate the impact that has on reducing delinquency and on improving employment rates for these children who remained in school. Assume the program cost equals $1500 per participant; assume the costs averted by participation equal $9,000 per participant (based on the number who would have entered the juvenile justice system). This program produces a 6 to 1 favorable impact, not even considering the value of enhanced employment for the individual participants and their families, and not to mention the additional financial benefits produced by a better qualified workforce for employers and the community at large.
How might this translate into programs related to issues currently presenting critical challenges to our communities?
The Trust for Health recently reported that spending just a few dollars per person each year on prevention strategies could reduce the incidence of obesity, diabetes, and other diseases and save all of us and our health care system thousands of dollars per person, not to mention the human suffering of chronic illness and lowered life expectancy. As the data show on our Twin Cities Compass web site, obesity trends stand out as some of the most serious, yet largely preventable, health challenges that we face. A dollar spent on prevention can save many, many dollars spent on cure.
Leonard Pitts Jr., in a column this week, challenged all of us to “consider the math.” For some children, a $3,500 investment at age 8 can produce a $60,000 savings 10 years later.
We enjoy the opportunity to collaborate with a network of others from around the nation and the world who seek to bring return-on-investment research into focus, to assist public officials, philanthropists and others who allocate resources to make better decisions – not to mention assisting all of us who volunteer, vote, pay taxes, and make other contributions which we hope will produce as significant a long-term return as possible. We all have limits on our time and our money; it can reassure us to know that we can direct those resources based on the best possible evidence of effectiveness and cost effectiveness.
In a future blog, I’ll say a bit more about some of the key things we learned at last week’s Wilder Research seminar on ROI. If you have thoughts or questions in the meanwhile, please let me know.
Monday, June 16, 2008
Taxes for Nonprofits?
In New York City, in the turbulent sixties, “hippies” and other anti-establishment folks sometimes wore buttons proclaiming “Tax the Churches.” Today, a new generation, less flamboyant and less hirsute, asserts we should tax all nonprofit organizations.
Should nonprofit organizations pay taxes? You might say no, but what if you knew that the National Football League is a nonprofit organization, or that some nonprofit CEOs earn more than many local business executives? A recent, front page article in the New York Times, citing a new Minnesota court ruling, described the increasing number of challenges across the nation regarding the tax exempt status of nonprofits, and it raised the issue of how to define “nonprofit”.
Currently, nonprofit status is given to organizations that range from health care and educational institutions with billion dollar budgets to small mom and pop operations, with no paid staff, operated out of the living rooms of their volunteer executive directors.
Unlike for-profit businesses, most “tax-exempt”, nonprofit organizations do not pay property taxes, Federal income taxes, or sales taxes– as long as the income of the nonprofit relates to its mission. The rationale for this exemption includes: the desire to provide an incentive for organizations to do charitable work; the fact that nonprofits pick up much of the work that government cannot do; and separation of church and state (in the case of religious organizations). Note that employees of nonprofits do pay income taxes; nonprofits do pay the employer’s share of Social Security tax for their employees.
So, why does the National Football League qualify as a nonprofit? Why does the NCAA have nonprofit status? These organizations do not receive all the tax breaks that charitable nonprofits receive, but they do receive some. Reasonable people have begun to ask why. These kinds of organizations do not match the image that many of us have of nonprofits – offering free or reduced-cost service to needy individuals and families, provided by volunteers or modestly paid staff.
In the Minnesota case cited in the Times, a child care organization in Red Wing offered its services at the same price to all parents, regardless of their income and ability to pay. The Minnesota Supreme Court ruled that the organization “had to pay property taxes because, in essence, it gave nothing away.” The Times reported, “The court concluded that because the center charged all families the same amount, regardless of their ability to pay, and because its rates were not lower than those of its competitors, it was not an institution of “purely public charity” under the law and thus was subject to thousands of dollars in property taxes — $16,000 in 2006 and in 2007.” Nationwide, the article says, the tax-exempt status of charities costs local governments $8 billion to $13 billion annually, according to various rough estimates.
Some good arguments exist for taxing nonprofits – not necessarily at the same level as for-profits, but at some scale based on a specific nonprofit’s ability to pay.
Nonprofits benefit from the services of government. Their clients travel to them using roads paved and maintained by government, for example; the organizations themselves receive police and fire protection; and their employees can take advantage of some government services and amenities. Nonprofit organizations enjoy many other protections of the law.
Some nonprofits have millions or billions of dollars in their endowments. The Boston Globe reported in January that Harvard’s endowment had topped $34 billion and that 76 universities have endowments of more than $1 billion. Many nonprofits, especially large ones, pay their top staff salaries equaling or exceeding what for-profit and government organizations pay. None of these organizations would suffer from paying a small amount of tax.
But strong arguments also exist for retaining tax exemptions for nonprofit organizations. Here, briefly, are four.
Notably, many nonprofit organizations provide services which no other organization will. How many for-profit soup kitchens and homeless shelters have you seen? Nonprofit organizations deal with issues that the private sector and government avoid; they tackle problems and meet needs that families, neighborhoods, and communities are unwilling or unable to address.
Nonprofit organizations have demonstrated new approaches to critical social and community issues. The first schools were nonprofit endeavors; health care came to many communities in the United States under nonprofit auspices; initiatives to stimulate business development in aging cities and rural areas have begun as nonprofit enterprises; preservation of history and art has occurred largely because of nonprofit organizations. Nonprofits do creative, pioneering work.
Taxation would drive some nonprofit organizations out of business. Many of these organizations operate on a shoe string, made up of volunteer staff working at their kitchen tables. These organizations could not sustain a tax payment, even if someone could figure out how to compute such a tax. Taxation would cause even some larger nonprofit organizations to reduce in size or go out of business. This would lessen the innovation, intellectual and ideological diversity, and compassion that these organizations bring to our communities.
Finally, many nonprofit organizations – serving individuals or entire communities – rely heavily on government sources. What sense does it make to put a tax on government support?
The Council on Foundations sums up these and other reasons: “generous exemptions recognize the important principle that organizations that act voluntarily to further the public good should be freed from the obligation to support government through payment of taxes. Exemption maximizes the ability of charities to help others.”
Nonprofit organizations contribute greatly to the economy. The Minnesota Council of Nonprofits reports that the nonprofit sector in Minnesota employs more than a quarter of a million people. The 2008 Nonprofit Almanac, published by the Urban Institute Press, reports that, for the United States as a whole, “nonprofits employed 12.9 million people in 2005, or about one in 10 U.S. jobs, and paid wages totaling $489.4 billion, accounting for 8.1 percent of all wages in the U.S.”
You may feel that many of these organizations can and should pay taxes; you may feel that some nonprofit organizations should pay some taxes, even if at a reduced rate; you may feel that nonprofit organizations should remain tax exempt. I can respect any opinion, if you form it on the basis of an objective understanding of what nonprofits do and how they contribute to our society. Just don’t be swayed by the rhetoric either pro or con. Look at the facts, and I think you will conclude that nonprofit organizations with a truly charitable mission create a return on investment that is worthy of support.
Should nonprofit organizations pay taxes? You might say no, but what if you knew that the National Football League is a nonprofit organization, or that some nonprofit CEOs earn more than many local business executives? A recent, front page article in the New York Times, citing a new Minnesota court ruling, described the increasing number of challenges across the nation regarding the tax exempt status of nonprofits, and it raised the issue of how to define “nonprofit”.
Currently, nonprofit status is given to organizations that range from health care and educational institutions with billion dollar budgets to small mom and pop operations, with no paid staff, operated out of the living rooms of their volunteer executive directors.
Unlike for-profit businesses, most “tax-exempt”, nonprofit organizations do not pay property taxes, Federal income taxes, or sales taxes– as long as the income of the nonprofit relates to its mission. The rationale for this exemption includes: the desire to provide an incentive for organizations to do charitable work; the fact that nonprofits pick up much of the work that government cannot do; and separation of church and state (in the case of religious organizations). Note that employees of nonprofits do pay income taxes; nonprofits do pay the employer’s share of Social Security tax for their employees.
So, why does the National Football League qualify as a nonprofit? Why does the NCAA have nonprofit status? These organizations do not receive all the tax breaks that charitable nonprofits receive, but they do receive some. Reasonable people have begun to ask why. These kinds of organizations do not match the image that many of us have of nonprofits – offering free or reduced-cost service to needy individuals and families, provided by volunteers or modestly paid staff.
In the Minnesota case cited in the Times, a child care organization in Red Wing offered its services at the same price to all parents, regardless of their income and ability to pay. The Minnesota Supreme Court ruled that the organization “had to pay property taxes because, in essence, it gave nothing away.” The Times reported, “The court concluded that because the center charged all families the same amount, regardless of their ability to pay, and because its rates were not lower than those of its competitors, it was not an institution of “purely public charity” under the law and thus was subject to thousands of dollars in property taxes — $16,000 in 2006 and in 2007.” Nationwide, the article says, the tax-exempt status of charities costs local governments $8 billion to $13 billion annually, according to various rough estimates.
Some good arguments exist for taxing nonprofits – not necessarily at the same level as for-profits, but at some scale based on a specific nonprofit’s ability to pay.
Nonprofits benefit from the services of government. Their clients travel to them using roads paved and maintained by government, for example; the organizations themselves receive police and fire protection; and their employees can take advantage of some government services and amenities. Nonprofit organizations enjoy many other protections of the law.
Some nonprofits have millions or billions of dollars in their endowments. The Boston Globe reported in January that Harvard’s endowment had topped $34 billion and that 76 universities have endowments of more than $1 billion. Many nonprofits, especially large ones, pay their top staff salaries equaling or exceeding what for-profit and government organizations pay. None of these organizations would suffer from paying a small amount of tax.
But strong arguments also exist for retaining tax exemptions for nonprofit organizations. Here, briefly, are four.
Notably, many nonprofit organizations provide services which no other organization will. How many for-profit soup kitchens and homeless shelters have you seen? Nonprofit organizations deal with issues that the private sector and government avoid; they tackle problems and meet needs that families, neighborhoods, and communities are unwilling or unable to address.
Nonprofit organizations have demonstrated new approaches to critical social and community issues. The first schools were nonprofit endeavors; health care came to many communities in the United States under nonprofit auspices; initiatives to stimulate business development in aging cities and rural areas have begun as nonprofit enterprises; preservation of history and art has occurred largely because of nonprofit organizations. Nonprofits do creative, pioneering work.
Taxation would drive some nonprofit organizations out of business. Many of these organizations operate on a shoe string, made up of volunteer staff working at their kitchen tables. These organizations could not sustain a tax payment, even if someone could figure out how to compute such a tax. Taxation would cause even some larger nonprofit organizations to reduce in size or go out of business. This would lessen the innovation, intellectual and ideological diversity, and compassion that these organizations bring to our communities.
Finally, many nonprofit organizations – serving individuals or entire communities – rely heavily on government sources. What sense does it make to put a tax on government support?
The Council on Foundations sums up these and other reasons: “generous exemptions recognize the important principle that organizations that act voluntarily to further the public good should be freed from the obligation to support government through payment of taxes. Exemption maximizes the ability of charities to help others.”
Nonprofit organizations contribute greatly to the economy. The Minnesota Council of Nonprofits reports that the nonprofit sector in Minnesota employs more than a quarter of a million people. The 2008 Nonprofit Almanac, published by the Urban Institute Press, reports that, for the United States as a whole, “nonprofits employed 12.9 million people in 2005, or about one in 10 U.S. jobs, and paid wages totaling $489.4 billion, accounting for 8.1 percent of all wages in the U.S.”
You may feel that many of these organizations can and should pay taxes; you may feel that some nonprofit organizations should pay some taxes, even if at a reduced rate; you may feel that nonprofit organizations should remain tax exempt. I can respect any opinion, if you form it on the basis of an objective understanding of what nonprofits do and how they contribute to our society. Just don’t be swayed by the rhetoric either pro or con. Look at the facts, and I think you will conclude that nonprofit organizations with a truly charitable mission create a return on investment that is worthy of support.
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