Even Philanthropies Pitch Stimulus Plan

But Nonprofits Must Walk Delicate Line

Posted January 9, 2009 at 5:59pm

When the very definition of your tax status means you’re not out to make a buck, lobbying for a slice of President-elect Barack Obama’s $1 trillion economic stimulus bill might seem a bit superfluous.

Not for the nonprofit sector, however, which is making a rare, direct push for legislative help to ease billions of dollars in recession-related investment losses now on its books.

“For years and years, we were just supposed to keep our heads down and care for people,” said Larry Ottinger, president of the Center for Lobbying in the Public Interest, which encourages philanthropic groups to take their gripes to policymakers. “The economic stimulus is one great opportunity for us to start looking at problems more systemically.”

To make their case, some nonprofit groups are lining up behind a familiar face on the House side: former Rep. Steve Gunderson.

The one-time Wisconsin GOP lawmaker, who retired in 1997 after 16 years in the House, now runs the Council on Foundations, a trade association of sorts for more than 2,000 grant-making organizations.

Gunderson joined the group three years ago, recruited to be a political sherpa for an often-fragmented portion of the nonprofit community composed of philanthropic titans such as the Pew Charitable Trusts as well as lesser-known groups like the Alaska-based Rasmuson Foundation.

Jeff Clarke, an executive at Rasmuson, said Gunderson’s Hill acumen was one of his primary selling points to the grant-making community.

He said that many in the nonprofit world historically have avoided pushing legislation, both out of fear of violating federal lobbying restrictions and because of a culture unique to nonprofit groups.

“There’s been this school of thought that because philanthropy is engaged in doing good work, everyone knows about it,” Clarke said. Gunderson “understands the intersection of communication and public policy in philanthropy.

“I think you’re going to see more of it,” Clarke added.

The former eight-term Member said his task now is to find legislative fixes to help his group’s ailing membership.

“We calculate that philanthropy has lost well over $200 billion in its endowment value in the United States,” Gunderson said. “What we’re looking at is how to best create the environment to grow philanthropy.”

Still, despite the seemingly cavernous vault of government cash, tax breaks and other incentives that an eventual stimulus plan undoubtedly will offer, Gunderson said he must be patient about aggressively approaching lawmakers, hat in hand.

“We’ve been very careful to make sure that we don’t advocate special interest legislation at a time of economic crisis, so we’ve crafted our agenda on those items,” he said.

Two days before Christmas, Gunderson sent Rep. John Lewis (D-Ga.), chairman of the Ways and Means Subcommittee on Oversight, his group’s four-part stimulus wish list.

These include arcane tax issues such as an extension and expansion of an IRA charitable rollover and the creation of “low-profit” limited liability companies.

The groups also want to “flatten” excise taxes that foundations often pay when their endowments or grant-making fluctuate dramatically from year to year.

According to Gunderson, foundations are estimated to have lost an average of 30 percent of their endowment’s value since the stock market peaked more than one year ago, a sharp decline that has complicated accounting repercussions.

By law, private foundations are required to hand out at least 5 percent of their financial holdings each year. They are also taxed on their net income at a rate of just 1 percent, but only if their annual distributions are greater than the philanthropy’s five-year average.

The problem is that this year, with sharply declining stock portfolios, the same dollar amount that had been a 5 percent disbursement of a foundation’s value the year before now becomes a much greater figure percentage-wise.

And so the next year, in order to maintain that 1 percent tax rate, foundations will have to exceed that five-year average again, an average that falling portfolio values have made that much higher.

“It would be a tragedy of public policy if we penalized the nation’s private foundations in 2010 with an excise tax rate increase, for having made a huge effort in 2008 and 2009 to maintain support of their local grantees despite the downturn in the economy,” Gunderson wrote in his wish list.

“Let’s not have a penalty on foundations that are trying to do good,” Gunderson added in the interview. “We’re not asking for a tax break here, we’re just saying let’s have a standard rate.”

Not all of the nonprofit community is as outspoken as Gunderson about supporting the legislative changes.

The Pew Charitable Trusts, one of the Council on Foundations’ largest members, appears to be standing on the sidelines on the stimulus. Some of the council’s lesser-known members, however, are pushing full-bore for philanthropic-related provisions to be included in the stimulus bill.

Lisa Cutler, a spokeswoman for the Pew Charitable Trusts, said her group has “not been advocating directly,” while Lance Lindblom, president of the New York-based Nathan Cummings Foundation, said he supports Gunderson’s push to pressure lawmakers on the tax changes.

“The tail is wagging the dog. This two-tiered system, which was set up to encourage grant-making, is actually decreasing the amount of grants that are made,” Lindblom said. “We’re not looking for a tax break, we’re looking for a tax change.”

He added: “I have written and talked to people about this for 20-something years. We’ll be penalized for trying to make an effort, for doing more.”

The Nathan Cummings Foundation, which posted tax returns in recent years showing its endowment at more than $500 million, is estimated to have lost 28 percent to 30 percent of its holdings, according to Lindblom.

“This one’s hit almost everybody,” he said.

Despite his pleas, Gunderson appears to be running into a wall of opposition in Congress.

One GOP staffer said that Gunderson’s group’s priorities were “legitimate stuff to talk about, [but] this debate should be happening outside of stimulus.”

Hill Democrats, too, are signaling that the stimulus is off limits for legislative tweaks that may benefit nonprofits.

Matthew Beck, a Democratic Ways and Means panel spokesman, wrote in an e-mail that “at this time we do not expect these issues to be addressed in the context of a recovery package.”

Even if lawmakers pass on his priorities, Gunderson remains hopeful that foundations and nonprofit groups may eventually become a distribution point for stimulus cash, perhaps offering a lifeline to struggling groups.

“There are a lot conversations going on about incentives that some of the stimulus money would work through foundations,” he said. “It could be significant, based on the conversations that are occurring, but I’m not ready to say what the provision will look like.”