Debating the Role of Charities and Government

LETTERS TO THE EDITOR

To the Editor:

The strident castigation of the nonprofit sector by Pablo Eisenberg (“Strong Measures Are Needed to Prevent Nonprofit Abuses,” June 9), yet another in his long series of diatribes against the nonprofit world, betrays a woeful lack of understanding of what this vital sector of our economy is all about.

To be sure, inflated salaries and expenses of major foundations and charities need to be reined in. Is Independent Sector’s report inadequate? Yes, but let’s not throw out the baby with the bath water. The lack of some substance in the report is hardly a clarion call for federal regulation to stop abuses. The report should point up the fact that a government “one size fits all” solution will likely cripple the sector as a whole.

Let’s remind ourselves exactly why the nonprofit sector receives tax benefits from the government in the first place. Mr. Eisenberg clearly implies that accountability is due as a repayment of the tax subsidies the sector receives. Nothing could be further from the truth.

The nonprofit sector exists to provide services to society that the government cannot or will not provide. In return for this, the government (that is, the taxpayers and society) repay the sector with tax breaks — not the other way around. This fundamental understanding has been lost on a government sector that demands more and more services of nonprofits while at the same time seeks to remove the very tax structures that allow the nonprofit sector to function.

Should nonprofits be held accountable for their finances and operations?

Certainly. But the answer is increased scrutiny based on existing law and regulation with additional regulation where necessary. With the scrutiny of new auditing standards and financial reporting standards in the private sector, nonprofits are making adjustments as quickly as possible. But they do not have the resources of a private company or of the government to spend on paperwork and compliance issues while still exhorting a donor public to support their missions.

We must allow common sense to re-enter this discussion before we discover that the social-service agency down the street upon which we depend has closed due to unbearable red tape. As government seeks to increase its reach into the nonprofit sector, government officials and bureaucrats would do well to remember that once the nonprofit infrastructure is broken, it will be up to the government to provide those services, and cut its own wasteful spending, self-dealing, and complete lack of accountability.

Michael Shumway
Director of Development
Public Radio Partnership
Louisville, Ky.

Mr. Shumway’s views are his own and do not necessarily reflect those of his organization.

To the Editor:

Since much of Pablo Eisenberg’s column discusses the Panel on the Nonprofit Sector, particularly the draft recommendations prepared by the panel’s five work groups, we wanted to clarify the purpose of the recommendations and what to expect from the panel in the weeks ahead.

Since it convened last October, the panel has been committed to getting input from a broad cross-section of leaders to develop recommendations for strengthening the governance, transparency, and accountability of charities and foundations. More than 175 experts and leaders have volunteered countless hours on the panel’s work and advisory groups, putting aside their differences to find new ways to improve ethical conduct and responsible practice. Thousands of other people who run charitable organizations have contributed their ideas through conference calls, e-mails, and participation at the 15 field hearings the panel held around the country.

One of the most important results of this collaboration was the draft recommendations that the panel posted for public comment on its Web site last month. Those draft recommendations called for dozens of actions from Congress and the Internal Revenue Service, including:

• The use of qualified appraisers and sophisticated appraisal systems for larger noncash contributions.
• Minimum payouts from donor-advised funds.
• Stricter limits on Type III organizations so the benefits go to the charity, not the donor.

The drafts also recommend that nonprofit organizations, collectively and individually, make a series of changes immediately to improve their governance and increase transparency regarding operating practices in areas such as executive compensation and travel policies.

These and other changes detailed in the draft recommendations reflect principles that will ensure that the charitable community continues to provide a remarkable variety of services to people around the country and around the world.

The panel understands that effective government oversight is vital to preserving accountability, especially if, as recommended, Congress appropriates increased funds to the IRS for enforcement. At the same time, it recognizes there must be a balance between legitimate oversight and protecting the independence that has made charitable organizations dynamic and innovative.

Because of the great diversity within the nonprofit sector — a fact that contributes to its strength and expands its impact — there were differences of opinion on the issues and, in many cases, no simple or universal solutions. The panel posted the draft recommendations on its Web site to solicit comments that would help it understand the varying reactions throughout the sector. Some saw the recommendations as too tough, while others favored more stringent rules.

The panel has been using the draft recommendations, the reactions to them, and the input it has received over the last nine months as it has prepared the report it will present later this month. Stronger government oversight and more effective self-regulation will enable charitable organizations to demonstrate that they are good stewards of the public’s trust and that they continue to improve lives in every community.

Diana Aviv
Executive Director
Panel on the Nonprofit Sector
President and CEO
Independent Sector
Washington