News and analysis
December 01, 2011

With 'Super Committee’ Failure, Charities Brace for Budget Fights

Jim Stipe/Bread for the World

Nonprofits are looking to plead their cases for continued support.

The failure of the Congressional “super committee” to adopt a long-term plan for slashing the federal deficit has many nonprofit groups wondering if, when, or how deep the budget knife will slice into programs that help pay for their work and bolster the country’s safety net.

Congress must now try to overcome partisan rancor to deal with both short-term and long-term budget issues in an attempt to stem the mounting federal deficit. Most immediately, that means adopting the bulk of a fiscal year 2012 budget before a stopgap measure runs out this month.

In the longer run, lawmakers must figure out how to clean up after the 12-member super committee, which missed a November deadline for outlining a plan to shave $1.2-trillion from the federal deficit over the next decade.

Pulling the Trigger

In theory, the committee’s impasse will trigger a package of across-the-board spending cuts—half from defense programs and half from other spending—in January 2013. And those cuts would hit a wide range of health and human-services, arts and culture, environmental, social-justice, and other programs.

Congress still has time to change course before the reductions occur. But the pressure to trim spending is not likely to disappear any time soon.

“This is probably one of the most dangerous times that I’ve seen in watching this for over 10 years,” says Pat Read, former senior vice president of public policy at Independent Sector, the coalition of nonprofits and foundations, who is now a consultant in Washington. “Those programs that serve the most vulnerable and least powerful constituencies are very much endangered.”

Lobbying Congress

Against this ominous backdrop, human-services organizations are mobilizing supporters for efforts to stave off deep cuts.

Bread for the World, a Christian advocacy group that fights hunger in the United States and abroad, is among a coalition of organizations that lobbied the super committee to create a “circle of protection” around antipoverty and antihunger programs as it considered where to cut spending.

The group is now turning its eye to the 2012 budget proposals that have been wending their way slowly through Congress, worried about efforts to cut overseas development aid.

Spending Bills Snagged

Of 12 annual spending bills that govern spending for the fiscal year, which began in October, lawmakers have so far approved only three.

Those measures have reduced some money that is available to nonprofits, such as grants from the Department of Housing and Urban Development that promote community development and the availability of low-cost housing.

The remaining bills would allocate money in fields including health and human services, the arts, public broadcasting, national service, and international aid. But none have been approved yet by both houses of Congress.

Lawmakers passed legislation to keep those programs running until December 16. As a result, the stage is now set for further battles between the Republican-led House and the Democratic-led Senate.

“When you look at the House levels versus the Senate levels, the House levels are very alarming for us,” says Elizabeth Marcey, a policy analyst at Bread for the World.

A Senate committee, for example, has proposed increasing certain poverty-related development aid—such as programs on global health, refugee assistance, and famine relief—by 9 percent, while a House subcommittee wants to cut it by 4.3 percent, according to Bread for the World.

Similarly, House Republicans have proposed to drastically cut spending for the Corporation for National and Community Service, which would put AmeriCorps and other national-service programs out of business, while a Senate committee has voted to increase its budget slightly, to $1.09-billion.

Health Programs

In the longer run, many nonprofits are worried about the future of Medicaid, which pays for many health programs that charities provide to poor and disabled people.

Leaders in both parties, including President Obama, have already proposed cuts in Medicaid.

It now allocates money based on need, but many Republicans, including most of the 2012 presidential candidates, favor turning the federal-state program into a block-grant program that would provide lump payments to states and let them decide how to spend the money.

Groups like the Arc, which serves people with intellectual and developmental disabilities, worry that such a change would prompt states to cut back on services that, for example, help vulnerable people take medication, prepare meals, and manage money.

As a result, the charity has waged a “Don’t Cut Our Lifeline” campaign to lobby against such changes. “Medicaid is the program that provides the most in terms of services to people with disabilities,” says Marty Ford, the group’s chief public policy officer.

Medicaid is shielded from the automatic cuts that are scheduled for January 2013, but Ms. Ford says she worries about how Congressional negotiations will evolve.

Some Republican lawmakers are already pledging to trim the planned cuts to the defense budget, and if they succeed, “that will create a lot of pressure on the human-services field.”

State Concerns

While 2013 still seems a long way off, nonprofits could start to feel the impact of the automatic cuts as soon as July 1, when many states start their 2013 fiscal year and begin to factor in the planned drop in federal grants.

The Federal Funds Information for States, a service that tracks the fiscal impact of federal policy on state programs, estimates that the reductions could cost states about $16-billion in the 2013 fiscal year, or a decrease of 8.8 percent compared with 2011.

That could affect services in areas like substance abuse, mental health, maternal and child health, community health centers, Head Start, energy assistance, child care, and support for the homeless.

The federal budget impasse also leaves unsettled whether Congress will fiddle with the charitable deduction as it seeks new revenue or works to simplify the tax code.

Uncertainty on Tax Rules

Nonprofit advocates waged a lobbying campaign to persuade the super committee not to reduce the tax breaks that donors get for their charitable gifts, something that President Obama has proposed to do for wealthy taxpayers.

The advocates became alarmed when Republicans floated a plan to limit itemized deductions in exchange for sharply lowering income-tax rates, but Democrats rejected that idea.

“If there’s a teeny tiny sliver of a silver lining, it’s because they didn’t do anything, they didn’t do direct harm to the sector,” says Andrew Schulz, vice president of legal and government relations at the Council on Foundations. However, he says, it would have been better if the committee had both compromised to help solve the nation’s economic difficulties and “reasserted the importance of charitable-giving incentives.”

The impasse could provide some breathing room for a broader discussion about how changes to those incentives might fit into any “long-term, comprehensive” overhaul of tax policy, he says, adding that there may be ways to promote giving while also increasing federal revenue.

Congress has also failed to extend a package of tax breaks that are scheduled to expire at the end of 2011, including one that allows older people to donate up to $100,000 from their individual retirement accounts tax free. It is unclear when Congress may vote on the matter.

On the bright side, all of the uncertainty about possible changes to tax incentives could promote greater charitable giving this year, says Ms. Read, the nonprofit consultant. “A lot of people,” she says, “are very nervous about what Congress might do next year.”