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Some days more than others, we need to remind ourselves that nonprofits are a hallmark of a healthy democracy and a thriving economy. Today is one of those days. In other countries nonprofits are referred to as non-governmental organizations to indicate their separate relationship from the government, since it is the IRS that deems the reality of our existence in this country, we are framed from a tax perspective. In either case, our role is essential in the depth and breadth of our services that the government either will not or cannot provide and inherently will fail in a market-driven economy. The rationale for our existence in a thriving economy is also long – just look around at how each of your communities operates. Ask yourself, who is doing the work and I imagine you might surprise yourself to see nonprofits as a backbone to almost every area of your life. I say backbone because sometimes, we are working quietly behind the scenes to hold up and support both for-profit and government endeavors – in our best efforts, we are working as solid partners in mutually beneficial ways.
So why talk about nonprofit’s essential role in democracy and our economy now? Honestly, I am not sure we can talk about it enough right now. As the election year heats up and policymakers from every perspective seek to scare, influence, and shake some of the fundamental principles of our sector, the imperative that each of you feel empowered and confident to stand for your mission in the public policy space is essential.
The sector is wildly diverse in its missions and perspectives. As part of our democratic process, I guarantee that for almost every issue you love and cherish there is a nonprofit that seeks to support their mission in opposition. And yet, for as diverse as we are in our missions, budgets, scope, and scale, we are held to the same rules. I want to call out three today because again the public discourse and some in power are seeking to shift our very structure for their political advantage. This is the time to stand strong.
Next Step Action: This is the time to review your bylaws. Understand your own rules. If you have members, understand why you have them and how they serve your mission work. Be clear and have a plan for how the board will create a slate of “the right people at the right time to move the mission forward” regardless of how the next step of elections occurs.
2. Know the opportunities and limitations of your public policy voice. Too many 501(c)(3) organizations are confused by what they can and cannot do in the public policy area and as a result simply opt out completely. At a time when nonprofits are subsidizing government because agencies are unable to pay their grants and contracts on time, and when the burden to do more with less is ever mounting because of increased demands for services with shrinking operating support and workforce shortages in every corner of our sector, your voice matters. The one rule however that you must abide by if you are a charitable 501(c)(3) nonprofit is something called the Johnson Amendment which among other things keeps your nonprofit nonpartisan by enforcing the rule that you DO NOT endorse or oppose a political candidate. We have written extensively on this topic before when it was under the threat of repeal, but those threats remain and in a deeply divided political landscape the temptation to endorse a candidate can feel very tempting. We urge you to reconsider any small or large steps in that direction and to be mindful that this is one of the few spaces in our democracy that is politically neutral on purpose.
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3. To be sure, our tax status designation is not a business model. Every nonprofit organization should make a profit because when they do it means more mission will occur. The IRS has several rules to ensure that money goes right back to mission including the requirement of voluntary board service, annual reporting of income and expenses through the 990 tax form, and a clear definition of unrelated business income which incurs taxation. What drives each nonprofit’s economic engine is really one of two things: Either it is earned income derived from a fee-for-service model in which it is direct or third-party pay or charitable contributions. Each organization has its strengths and “dabbles” as we say in the other. The IRS requires all nonprofits to pass the “public support” test to varying degrees which means that no nonprofit is simply earning all its revenue. Still, the vast majority of our nonprofits are engaged in earned income practices to support and advance their missions as seen in this graphic produced by The National Council of Nonprofits.
And yet, we continue to see local lawmakers be confused by this activity and too many who try to impose both property and other taxes on our sector because we earn our income. What is missing in their equation is the mission impact we have in the community including but not limited to saving the same government time, staff, and money for providing the services in the first place. This is an ever-present concern, but the escalation of these taxation battles across our communities over the last five years is taking up enormous resources that could be better spent delivering mission.
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In a country and state so divided it is easy to point out the areas where we are at odds, let’s also never forget that each of our contributions to improving people’s lives, strengthening our economies, and deepening our commitments to the fundamental principles of democracy are what hold us together.
Be strong. Have confidence. Use your mission voice.
Laurie