This is the slow yet steady process by which regulators regard charities more as for-profit corporations. I’ve blogged it before.
My interest in this began with former New York Times nonprofit reporter Stephanie Strom’s coverage last August of California eyeing tax exemptions. I’ve got some new data points.
- The Chronicle of Philanthropy reports Pittsburgh is collecting payments in lieu of taxes (PILOTs) from charities and Memphis is considering the same. The Memphis coverage states, “Over the last decade PILOTs for tax-exempt entities have been used in at least 117 municipalities in at least 18 states.”
- When I interviewed (see the last 2 minutes)The Nonprofit Times‘ editor-in-chief Paul Clolery for Nonprofit Radio, he shared his concern that the lines are blurring between corporate and charitable. He sees California’s B Corp (a designation under which for-profit corporations provide a benefit to the public) as the first step toward a request for relief from taxes in proportion to the societal benefit. Do you see the harsh irony as charities lose favorable tax treatments?
- Many states have something similar to the B corp, the low-profit limited liability corporation, or L3C.
- Last month, The Chronicle had a very interesting and slightly startling opinion piece about the supreme court’s Affordable Healthcare Act decision making it easy for Congress to curtail charity tax exemptions and charitable deductions.
These signal a blurring of the distinction between charitable and corporate, and a loss of the special perquisites that keep charities thriving and donors giving.
I think about these together and I’m troubled.
The most prominent “grail” I have in mind is the idea that if nonprofits would only learn to think and act more like for-profit businesses, many of the challenges facing the field would diminish or disappear. What I have seen instead, at least to some extent, is the loss of some valuable characteristics that had been native to the nonprofit field, including a very strong focus on mission (replaced in some cases by focusing on the needs of the organization as an institution) and the ability to maximize resources that can’t be quantified financially.
I don’t dismiss the value of good business practices: in fact they are essential for nonprofit success. But the for-profit world does not have a lock on all the good ideas, leaving me with the thought that learning successful management approaches is ideally more a two-way street between for-profits and nonprofits, each of which has much to offer.
I hadn’t thought of it, but I see that the L3C, B Corp and similar forms could induce existing and potential 501(c)(3)’s away from the nonprofit corporation form of organization. For years there’s been the question of whether we have too many charities, often competing. A profit requirement might discourage some entrants, reducing overlap. But would it? The passions run enormously high among motivated charity founders, who are often reluctant to look at partnering with an existing charity as an alternative to starting their own. These are stimulating issues.
What grails are you thinking of? What approaches that didn’t succeed?
That would pit charity against charity which would weaken what I presume would be the charity community’s opposition to the idea. I envision colleges and social service agencies potentially being on opposite sides of that debate.
It may be fair to say also that nonprofits have helped create a landscape in which this shift is possible by holding out corporate approaches to their problems as a sort of grail, with a desire over the past couple of decades to act more like the for-profit sphere.
This has blurred the lines from the inside out, without necessarily providing the promised magic solutions to our problems.
Regarding the tax deductibility of charitable contributions: Many countries do not allow the tax deduction of charitable contributions. And in our country this deductibility overwhelmingly favors those in higher tax brackets who itemize. Maybe a rethinking of this tax policy isn’t a bad idea. For example: do we, as a people, want to treat donations to cultural institutions in the same manner as donations to poverty fighting organizations? These discussions truly open up the proverbial “can of worms”.
CA also has the flexible purpose corporation which is IMHO a better statute than the benefit corporation statute. But for both forms, it is more a marketing tool than anything else – it does not REQUIRE that any of the assets actually be used for nonprofit purposes.
There is nothing one can do with an L3C that one cannot do with an LLC. It is strictly a marketing device – making people think that it is something special.
But as to your basic point, I absolutely agree with the concern. In fact, the more regulation is heaped on nonprofits, the less benefit it is to BE a nonprofit. I already represent one entity that decided to forego nonprofit status, especially since it did not need the charitable contribution deduction (and as a for-profit entity it has no disclosure requirements).