WASHINGTON — For some nonprofits, the good times are back. Corporate profits and the stock market are up, and wealthy families have regained nearly all the income they lost during the recession. In turn, charitable giving has increased for each of the last three years, and many nonprofits have intensified fundraising or seen huge donations roll in: a $100 million gift to the Central Park Conservancy, say, or Harvard’s new $6.5 billion capital campaign.
But those are exceptions, not the rule, nonprofit experts said, and those in the field remain anxious. Even as the economy recovers, the charitable sector as a whole is facing a tough and deeply uncertain economic environment. The economic scars from the recession continue to haunt many charitable groups. Need remains acute. And the tough fiscal environment for federal, state and local governments further threatens them.
“The question of capitalization is still the overarching concern,” said Diana Aviv, the chief executive of Independent Sector, an umbrella group for nonprofits.
While charitable giving has increased in the last few years, it remains about 8 percent below its prerecession high. The rise in giving is sluggish, reaching just a 2 percent annual growth rate last year. And according to calculations by the Indiana University Lilly Family School of Philanthropy, it will take six or seven more years, accounting for inflation, for giving to reach its 2007 benchmark of $344.5 billion.
Moreover, the roaring economy for the 1 percent has not led to a surge in big gifts overall, although some individual charities and nonprofits have started to see gains. The number of publicly announced million-dollar gifts, for instance, has fallen every year for the last half-decade, to 1,412 in 2012 from 8,529 in 2008.
Summing up, Antony Bugg-Levine, the chief executive of Nonprofit Finance Fund, argued: “Government funding is not returning to prerecession levels, philanthropic dollars are limited and demand for critical services has climbed dramatically. At the same time, 56 percent of nonprofits plan to increase the number of people served. That goal requires change and innovation.”
For many nonprofits — in particular, those that provide things such as meals, housing and clothes to poor Americans — it’s as if the recession never ended, with high unemployment and declines in real wages continuing to create extraordinary demands on charitable groups. Given the conditions, many nonprofits report that they remain unable to meet their communities’ needs. More than half of respondents to a Nonprofit Finance Fund survey conducted this year said they were unable to meet demand for their services, up from 44 percent in 2009. About nine in 10 said that their clients were facing financial conditions as bad as last year or worse.
Compounding the problems are federal, state and local budgets. Charities rely on a tax code that encourages giving and on government contracts; both are being scrutinized, if not squeezed.
Earned income, from things like ticket sales and payments for services, makes up about half of revenue for nonprofit groups; that budget category remains strained as nonprofits’ clients remain strained. But the second-biggest revenue source is government, which provides about three times the revenue that private giving does and 40 times the revenue of corporate giving. Charities are often thought of as surviving on the largess of private individuals, but they more often survive on government largess, providing government-sponsored child care or legal services.
The trillion dollars of long-term cuts in projected spending known as sequestration — which Congress might redistribute but is unlikely to reverse — have held back financing for many budget categories affecting the sciences, environment, health, arts and services to the poor, thus affecting nonprofits.
Changes to the federal and state tax codes have many nonprofit groups worried, too. Last year, Congress and the Obama administration were at loggerheads over how to avoid a slate of automatic tax increases known as the fiscal cliff. Quietly, the Obama administration put on the table what many think of as a third rail in tax policy: the charitable deduction.
Limiting the deduction, charity experts argue, inevitably leads to a decline in donations. For that reason, the proposal spurred a lobbying effort by dozens of groups, which argued that taking away the preferential tax treatment of donations for even a small sliver of very wealthy Americans might reduce giving at a delicate time.
“It’s not about hurting the sector,” said Aviv of Independent Sector. “It’s hurting the causes and people we’re serving.”
Democrats and Republicans eventually left the deduction intact. But the Obama administration has repeatedly recommended taking away some of the preferential tax treatment for donations by families with very high incomes, raising uncertainty among charitable groups. Limiting such deductions — under the administration’s proposal, a $1,000 donation would get a deduction of 28 percent, or $280, rather than 39.6 percent, or $396 — “would have a modest impact on the incentive to make charitable gifts,” Treasury Secretary Jacob Lew told Congress during his confirmation hearing in February. He added that such a move was not “intended to single out the charitable sector.”
While Washington considers changing the federal deduction, many cash-short states have made changes at their level. In 2011, Michigan got rid of many of the state’s tax credits, including those for donations to local charities. The move came when the state’s poverty and unemployment rates were in the double digits.
That same year, Hawaii capped itemized deductions, including those for charitable donations, for higher-income families. The tax overhaul cost local charities about $50 million in donations, the National Council of Nonprofits has estimated. After an outcry, legislators lifted the cap.
But New York and other states have imposed or considered similar restrictions. As a result, nonprofit experts said, there will simply be lower revenue and higher demand for years to come — even as the economy comes back.