Nonprofits worry legal issue will compound money woes
The multi-sided world of nonprofit organizations in Pennsylvania is evident with the release of a legislative study examining what hundreds of nonprofits spend on administrative expenses, compensation and other activities such as lobbying.
The study focused on nonprofits receiving state aid to deliver human services as part of a charity mission. In this same category are community nonprofits with annual budgets in the $1 million range and large health care providers with budgets that can amount to hundreds of millions of dollars.
A finding by the legislative Budget and Finance Committee illustrates the scope. Of 662 nonprofits in the study, 24 had net revenues (minus expenses) of more than $10 million, 90 in the $1 million to $10 million range, 198 in the $100,000 to $1 million range, 133 in the zero to $100,000 range and 241 reported negative net income.
These nonprofits, regardless of financial standing, fall under a 1997 state law that sets criteria to determine what a public charity is, and therefore, tax-exempt status. This law is under challenge due to a state Supreme Court ruling last year that gives preference to a 1985 court case in defining charities.
Lawmakers are considering a proposed state constitutional amendment to uphold the legislative branch's authority to determine criteria for standards. If that amendment makes it on the ballot, statewide voters could be asked in an oblique way to weigh in on the role of nonprofits.
The important thing is that any criteria be applied consistently by local governments, said Tony Ross, president of the United Way of Pennsylvania.
"Our concern is there be consistency across the commonwealth," he added.
Otherwise, the tax-exempt status of a nonprofit could vary based on what county or municipality it's providing services in, said Ross.
He said consistency takes on added importance because community nonprofit organizations are under pressure to consolidate, thereby often creating larger service areas that reach across more local governments.
The nonprofits are facing a perfect storm with reduced state and federal funding, a 6 percent drop in charitable giving in Pennsylvania from 2005 to 2010, increased demand for services and reduced capacity to meet needs, said Ross.
The impact of this on 800 Pennsylvania nonprofits surveyed in 2012 by United Way shows that 51 percent implemented layoffs, 38 percent eliminated programs, 48 percent reduced hours and 47 percent expanded waiting lists for services.
The nonprofit issue is surfacing in Washington, too, with proposals to put a dollar limit or percentage cap on the federal Charitable Tax Deduction as part of the tax reform debate.
These proposals would compound the problems with state and federal budget cuts and the decline in charitable giving due to the recession, said Ross at a recent hearing before the U.S. House Committee on Ways and Means.
"Such proposals would damage nonprofits' ability to address some of the most serious challenges in our communities," he added.
(Robert Swift is Harrisburg bureau chief for Times-Shamrock Communications newspapers. E-mail: firstname.lastname@example.org.)