Katrina Spending Fuels Concerns About Federal Budget Cuts for Charities

Federal spending in response to Hurricane Katrina is adding to concerns raised in a new report about

potentially deep cuts in federal support for charities.

The report, by the Aspen Institute, a Washington think tank, says that, if enacted, the Bush administration’s budget plan for the 2006 fiscal year could mean the elimination of up to $71.5-billion in federal spending on nonprofit groups over the next five years.

Charities might lose even more government support, says Alan J. Abramson, one of the report’s authors, with tens of billions of federal dollars being pledged to help people and areas affected by the Gulf Coast hurricane.

“Some Katrina money will flow to nonprofits, but the money has to come from somewhere,” says Mr. Abramson, director of the Nonprofit Sector and Philanthropy Program at the Aspen Institute.

“This budget proposal and the budget decisions that will have to accompany Katrina spending could negatively impact the infrastructure of charities for years to come,” he added.

The government’s 2006 budget is supposed to take effect on October 1, but Congress is not expected to complete work on it by then.

According to the report, the 2006 budget plans laid out by the White House and Congress reflect a trend of shifting responsibility for social programs from the federal government to charities. And, the report says, it is not clear that charitable donations can fill what would be the resulting gap.

To offset the potential federal cuts in housing, job training, education, and social-service programs, donations by individuals, foundations, and businesses would have to grow at a pace nearly three times its current annual rate of growth. That means that gifts would have to grow by as much as 8 percent each year, compared with the 3 percent that has been typical in the last two decades, the report says.

And even if private giving made the jump, Mr. Abramson adds, it is unlikely that contributions would be directed to the organizations and programs that lose government money.

“Private dollars aren’t going to just naturally flow where government dollars have left,” he says.

Medicare and Medicaid

In the aggregate, the White House’s budget plan would expand overall federal spending on programs of interest to charities over the next five years, the report says.

But, the report says, the increase would be almost entirely due to expected growth in spending under the federal health programs Medicare and Medicaid. Outside of health and welfare-assistance programs, the president’s budget would represent a $71.5-billion cut in grants to charities compared with what would be available if the government continued spending at the pace it has in the 2005 fiscal year.

After adjusting for inflation, federal outlays would fall by 39 percent for community- and regional-development programs; by 10 percent for education, job training, and social-service programs; and by 3 percent for programs in international affairs, according to the report.

Though Congress has not yet passed a final budget, before Katrina struck it had passed a blueprint that would be “slightly less harsh on the nation’s nonprofit organizations and those that they serve,” the report says. But even under that plan, charities would be in for “sobering news,” according to the report.

Under Congress’s approach, federal spending for programs of concern to nonprofit groups would grow by 12 percent from 2006 to 2010, but, as in the president’s budget, most of the growth would be in health-care programs. Outside of health and welfare-assistance programs, federal spending, in such areas as education and employment, would drop by 7 percent, or by a total of $40-billion compared with 2005 spending.

The report, “The Nonprofit Sector and the Federal Budget: Fiscal Year 2006 and Beyond,” is the first in a series of studies that the Aspen Institute plans to conduct on the fiscal health of the nonprofit world. The report, which was written by Mr. Abramson and Lester B. Salamon, a professor at the Johns Hopkins University, is available free at http://www.nonprofitresearch.org.