Minimum Wage Increase Pinches Nonprofits

Small businesses across upstate are cutting hours, reducing staff and taking other measures to cope with the costs of a higher minimum wage.

Nonprofit administrators, already pinched by tight budgets, are finding the minimum wage increase is adding to the daily turmoil of operating an organization dependent on dwindling government grants, donations and a pushback from clients as they try to raise fees to cover the higher wage expense.

Most community-based nonprofits are locked into federal, state and local contracts that will not honor the increased employee costs that the wage increase brings, meaning that nonprofits would have to use or raise charitable dollars to subsidize the increase, said Doug Sauer, chief executive of the New York Council of Nonprofits. Most don’t have these funds to allocate so they cut back on staffing and services.

“It should be noted that this wage increase is also alongside increases in workers comp and unemployment rates, and raises at the state level of what constitutes an exempt employee,” Sauer said. “There is a triple if not quadruple whammy on mandated employer costs.”

As of now, the state government does not fully compensate nonprofits that they contract with for additional mandated costs of doing business, and most government contracts with nonprofits also do not pay the full cost of nonprofits’ services, Sauer said. There is a significant effort underway to see that the state does compensate the additional cost.

Because of undercompensation, nonprofits either lose money on state contracts or they have to find other sources to subsidize the services the government is contracting for, Sauer said.

►Wage hike may stymie small business

“A vast majority of local nonprofits operate on a shoestring and try to make do with what little they have,” Sauer said. “We may be approaching a time where more and more nonprofits simply refuse to do business with the state because they can’t afford to.”

Some nonprofits may choose to raise fees for their services.

“But not all are fee-based and raising fees means that there will be more people not being able to access their services,” Sauer said. “So, more human needs go unmet, or for arts and cultural organizations, less people benefit from what they offer.”

Ultimately, the increase in minimum wage harms the nonprofit industry, Sauer said.

“From nonprofits being a business that needs to be solvent, it threatens the viability and sustainability of many unless government, philanthropy and donors are willing to invest in the nonprofit workforce,” Sauer said. “Nonprofits already have a problem with recruiting and keeping qualified staff, who easily go to work for government, schools and the private sector to better support themselves and their families.”

Matthew Steecker is Southern Tier regional business reporter for the USA TODAY Network.

Matthew Steecker, @MSteecker Published 6:22 a.m. ET Feb. 16, 2017 

http://www.democratandchronicle.com

Weak enforcement of rules on U.S. charities: experts

(Reuters) - Authorities in the United States, particularly in cash-strapped states, have not devoted enough resources to policing nonprofit groups like those involved in recent philanthropy controversies, experts say

U.S. tax authorities grant groups charitable status, which exempts them from taxes, and require most to file annual informational tax returns, but experts say the main source of regulation faced by nonprofit groups is at state level from the attorney-general.

"The problem is that very few states have put the resources they should into this part of the attorney general's activities and the quality of regulation ... varies," said Leslie Lenkowsky, a professor of public affairs and philanthropic studies at Indiana University.

Best-selling author Greg Mortenson was accused by television program "60 Minutes" this week of misusing money given by donors, who include President Barack Obama, to his charitable organization Central Asia Institute. The New York Times reported last month that singer Madonna had ousted the board of her Raising Malawi charity due to mismanagement.

Many U.S. states are facing financial hardships stemming from the U.S. recession of 2007-2009, which has limited their budgets for law enforcement and other services.

There are about 2 million nonprofits in the United States. Of that number, just 20,000 receive about 85 percent of the $300 billion in U.S. donations made annually, experts said.

Mortenson, whose charity received $100,000 of Obama's $1.4 million Nobel Peace Prize award, has denied any wrongdoing and Madonna has said that her group was not under investigation.

Montana Attorney General Steve Bullock, who is responsible for overseeing the Central Asia Institute, said he will investigate concerns raised that the charity spends more promoting the importance of constructing schools in Afghanistan and Pakistan that is spends to build them.

"We've kept our rules relatively loose for charities in the United States," Lenkowsky said. "The reason being that our philosophy is that we would like to see lots of private initiatives that aim to serve a public interest."

HIGHER FRAUD RATE

Tax authorities reject very few applications by groups wanting to become charities, but making it more difficult would raise concerns about what criteria would be used to determine a nonprofit and could hinder efforts by groups to do good.

There are several independent charity watchdogs such as Charity Navigator and the American Institute for Philanthropy, where donors can get advice about larger nonprofit groups.

But their views can differ. The institute wrote a critical report about Mortenson's Central Asia Institute, while the Navigator gave it a top four star rating and then added a donor advisory warning when concerns about the group were raised.

"The vast majority of donors are looking for information that is readily available; they don't have a lot of time to do research for their charitable giving," said Ken Berger, chief executive of Charity Navigator.

"We're trying to oversee what is basically a $2 trillion part of the American economy -- one out of every 10 jobs -- 10 percent of GDP, and we are a very small operation," he said. "Creating further regulation would not be viable unless we get serious about enforcing existing law more rigorously."

Research shows that theft in the nonprofit sector accounts for 13 percent of annual donations, or about twice the rate of fraud in the for-profit sector, said Mark Kramer, co-founder of nonprofit consulting firm FSG and author of "Do More Than Give: The 6 Practices of Donors Who Change the World."

"In the for-profit sector, the line between what is illegal and what is merely bad judgment is clearly defined: Madoff committed fraud and is in jail," Kramer said.

"When one takes on the moral weight of running a charity, however, the rules are less clear," he said. "Unlike the for-profit sector, the scandal doesn't depend on whether something is illegal -- merely whether it sounds bad."

Kramer said donors tend to focus on funding good causes rather than judging charities by their results -- an approach which creates greater opportunities for mismanagement.

Protest Oregon's Proposed New Fundraising Law

Read Dan Pallotta's latest post in the Harvard Business Review:

Oregon's Attorney General John Kroger has introduced a bill that would strip the tax-deductible status from donations made to charities that spend less than 30% of their annual budget on services over the course of a three-year period. The law is intended to weed out scams.

And that's a problem. The fact that a charity spends less than 30% of donations on services doesn't mean it's a scam, and the fact that it spends more than that doesn't mean it's not one. The proposed law could not be more dysfunctionally designed: It has a blind spot for real fraud and puts a spotlight on potential innocence.

Here are six reasons why anyone who cares about social progress should contact Mr. Kruger's office and ask him to withdraw this proposed legislation:

1.It uses a false theory of transparency. It assumes — and makes the public think — that disclosure of overhead is transparency. Nothing could be further from the truth. Many reported overhead ratios distort and obscure the truth. They cloak the underlying accounting that goes into calculating the overhead percentage. Reporting a high rate of overhead probably signals a kind of innocence: It means the charity isn't using accounting shenanigans. The law drives right past real fraud (in the form of fraudulent accounting) — misses it completely, every time. Charities using aggressive, unethical accounting practices to mask high overhead get a free pass — or worse, they're made to look good. This practice is widespread. The Nonprofit Overhead Cost Project at Indiana University reported that, of 126,956 tax forms they studied, half of the organizations reported a hard-to-believe 0% fundraising cost, and one-quarter of charities with revenues between $1 million and $5 million reported a 0% fundraising cost.

Read more here.