How Restricting Donations Hurts NJ Nonprofits

August 1, 2011

By Nina Stack
President, Council of New Jersey Grantmakers

Nina StackThe news has been filled lately with stories relating to potential tax changes and/or regulations that would affect the social sector if passed.

On a federal level, our colleagues at Independent Sector are urgently asking supporters to sign onto a letter asking President Obama and Congressional leaders not to proceed with the proposed cap on the value of the charitable deduction for certain taxpayers. If instituted, this cap is projected to cost America’s charities as much as $7 billion a year.

Recently, the measure in Massachusetts to eliminate all compensation for board trustees – including private foundation board members – did not go forward but apparently there will be another attempt. And in Oregon, lawmakers did not approve a measure that would have required charities to spend at least 30 percent of their expenses on programs or else be unable to allow donors to get a charitable deduction.

Here in New Jersey, our own Division of Consumer Affairs is now taking comments on a “pre-proposal” that would mandate a charity to outline its programs on any direct funding request and then provide a way for donors to designate the specific programs they wish to direct gifts. It’s designed to address cases in which a charity focuses its appeals around particular programs (e.g., buying bulletproof vests for the troops) but actually spends the majority of its money fund raising or on administrative costs. While the intention is good to get rid of the bad apples who do this, the effect on the large majority of nonprofits could be devastating.

Here is why: although donors always have the option of restricting their gifts, the regulations would go further by effectively encouraging donors to do so, thereby reducing available funds for general operations, overhead or organizational flexibility to respond to unanticipated community needs. Without some operational support – to pay the auditors, have the phones answered and the lights on, and most importantly to react and assist when needed – a nonprofit cannot implement its programs effectively, which, in turn, reduces its ability to have an impact.

Measures like this and the one in Oregon are troubling and set the field back. The philanthropic community has come to see the importance and value of investing in organizational capacity and innovation, moving away from the highly restricted “project only” support. Let’s hope our Division of Consumer Affairs will take note and find a way to address the problem without undermining the thousands of charities doing the good work. They are accepting public comment through August 5th.

For more information and to learn what you can do to help, please visit the Center for Nonprofits’ website.

Nina Stack is the President of Council of New Jersey Grantmakers, the statewide association for corporate, family, independent, and community foundations. She is a regular contributor to the Dodge blog.