Standing Beside Alaska's Non-Profits

The Case to Engage in Public Policy

Nationally 31% of charitable nonprofit revenue comes from government grants. Alaska gets twice that much! That fact alone should make it clear that public policy is not just a good thing to do, many organizations must engage in it to survive. Even nonprofits that depend on earned revenue or charitable giving are not immune to today’s policy challenges. Never have stakes been so high. Individually and collectively we must act – we must do a better job of advocating for ourselves.

With government cutting budgets, nonprofits will be squeezed, pressured, restricted, and monitored to justify funding. Too many elected officials don’t understand that a nonprofit’s dependence on government funding pales in comparison to government’s dependence on the sector – especially in Alaska. Government needs us as much or more than we need it – and we must tell that story.

Some elected officials don’t understand why nonprofits are important, others lack respect for what we do. For example, recently some of our legislators were heard making statements that nonprofits are “not effective,” that “salaries are too high,” we “waste money,” we “don’t know how to run our businesses,” and that we need to be “taught” to do more for less. Unfortunately, these officials don’t know what they don’t know. If we don’t speak for ourselves, they may assume their perceptions are true. Thankfully, we also have great friends in the legislature that know better, but they too need our voice to reinforce the truth.

However, to have a credible voice we must do all that we can to dispel the myth that nonprofits are not worthy. Unfortunately, some organizations reinforce negative perceptions. Foraker identified a trend in our last nonprofit economic study in 2010 called “the crash of the herd,” which forecast a shortage of qualified and engaged boards and a looming scarcity of competent staff – in Alaska we now are experiencing both.

Recruiting and engaging the right people for boards is difficult. While most are comprised of well-meaning people who do their best, many are not adequately equipped. In the November 2013 newsletter, we suggested that in Alaska too many board members serve on too many boards – for too long. Both are warning signs of poor governance. If we want to be effective in public policy, we must have good governance. We need boards that have the business and financial competence to monitor the mission and the administration to ensure the public’s trust. We also suggest that boards need ongoing training – we recommend every two to three years.

Another consequence of not having the right board is in recruiting the best staff. Competent staff leaders are much less likely to gamble their reputation to work with a board they perceive as incompetent. This is one of the reasons why the time required to find the right candidate for executive positions continues to increase.

Even scarcer are individuals qualified to manage finances. Foraker financial shared services can hardly keep pace with the demand. Too often nonprofits need us to provide assurance to their executives and boards on their financial footing, which in a perfect world would come from their CFO.

When a nonprofit hires an incompetent executive or finance director, it feeds the perception that “we,” collectively, don’t know what we are doing. There is another, more ominous consequence. When we appear incompetent, government officials have incentive to increase oversight. As oversight increases, so do the expenses to comply, resulting in less capacity to provide services. That can be a costly negative cycle.

More oversight rarely results in better and more efficient service. For example, Foraker was approached by a federal agency urging us to apply for a small grant ($50,000) so that they could be identified with one of our successful ventures. In a lapse of judgment, we did what was required to secure the grant. The fact that it took twice as long as a typical proposal to complete their application should have been an indication that we were making a mistake. We got the grant. Often government grants require work be complete before reimbursement. So, in our case, we did the project – all that we had promised and more – and started to do what was required to be paid. Two years after the completion of the project, we have yet to receive a dime. More troubling is that to date it has taken more than $26,000 in staff time to comply with oversight requirements. Obviously, we made a big mistake.

This embarrassing example provides clarity on how, in the attempt to hold a grantee accountable, oversight can be excessive. So can delays in reimbursement. Both are like a non-legislated tax on an entity that, in law, was established as a tax-exempt organization. When the government is slow to pay, it is like a tax because we nonprofits use reserves to float the government’s mandate. In addition, when they require excessive oversight, like in our case where they required documenting all costs (even those that were not part of the grant), it’s like a tax. It drives up costs by forcing nonprofits to do more documentation than reasonable – more than they would require of any for-profit contractor. It would make more sense for the government to help nonprofits reduce costs and increase efficiency.

However, delays and oversight for government funding are only two public policy issues facing the nonprofit sector. For nonprofits that depend on earned revenue, almost half of charitable nonprofit income, there are rumblings that even when mission related, such revenue could be seen as potential income for strapped state budgets. Imagine Girl Scouts having to pay tax on cookies! YMCAs being taxed on their memberships. Clinics being taxed on their reimbursements. To date, none of these examples are happening in Alaska, but nonprofits in other states have addressed similar issues.

And the threats do not stop there. Charitable giving is under assault. Last year, during the national debate on tax reform, both parties put the elimination of the charitable deduction on the table. What would happen if the nonprofit tax status went away? How would we adapt to such radical changes? My guess is that we’d change how we work.

The National Council of Nonprofits, our national association of state associations and nonprofits, provides leadership on issues like delayed government payments, as well as other challenges like the assault on the charitable tax status. Through their hard work, we monitor policy trends around the country. We learned that some legislatures already are increasing state revenues by imposing fees – they don’t call them taxes – on nonprofits. Some states have even begun to tax nonprofits.

Research conducted in a partnership with the National Council of Nonprofits and the Urban Institute monitors relationships between nonprofits and state governments, state by state. The Council provides technical assistance to state associations to address these challenges. As a Foraker Partner, you have access to this assistance.

In addition to support from the Council, Foraker belongs to Independent Sector (IS), another unifying voice for the sector. Through that partnership, Foraker Partners can, at a discount, participate in conferences that focus on many issues including public policy. We also share policy updates from IS and the Council in our newsletter and in special blogs. In addition, we offer classes on engaging in public policy. Foraker also has an active public policy committee comprised of some of the best political thought leaders in our state who serve on either our governance or operations boards. Alaska nonprofits increasingly have the tools to get involved.

Did I make the case? Are you prepared to engage? Are you at least a little worried?

If you want to preserve the sector we work in, that we have passion for, and that we need in order to thrive in a civil society, then engaging in public policy is not a nice thing to do – but we must do it. We need to invest as much time and talent in public policy as we do in fund development – and we need to start now.

Many Alaska nonprofits are masters at public policy. The Native nonprofit system has long understood the need to invest in public policy. Associations often place public policy at the core of their services. We know which Alaska nonprofits have proven themselves as competent. Most are willing to share their insights. Our hope is that every nonprofit in Alaska becomes an expert. It’s time to wake up, take a stand, defend our competence, and demand the same privileges as our for-profit counterparts that work for government.

Do you think that contractors building our roads are paid only after they totally complete the project? Do they have to comply with unreasonable reporting and compliance forms? I bet not!

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