News and analysis
February 10, 2011

Nonprofits Brace for Obama's 2012 Budget

Richard White/Chronicle of Philanthropy

Many nonprofit advocates expect bad news when President Obama unveils his fiscal 2012 budget on Monday. The president has said he plans to propose a five-year spending freeze on some domestic spending and has already outlined some cuts that would affect programs for low-income people.

But if last year's White House budget plan is any guide, the new proposals will also provide some gains for certain types of nonprofits. For example, last year he sought extra money for Head Start and national-service programs.

The political pressure to slash spending is far greater this year, however, with Republicans now controlling the House and facing strong demands for deep cuts from lawmakers backed by the small-government Tea Party.

House Republicans have already said they want to cut or eliminate spending immediately on AmeriCorps, the national-service program; community health centers; family planning; maternal and child health programs; legal aid; the National Endowment for the Arts; and the National Endowment for the Humanities, among other programs.

Meanwhile, Congress has still not adopted a 2011 budget, complicating efforts to compare the new White House plan with current spending. Lawmakers have been adopting a series of temporary measures to keep the government running, the latest one set to expire on March 4.

Following are some things to watch for on Monday:

Will the president renew his proposal to limit charitable deductions for the wealthy?

He may be on the prowl for new revenue since he will not be able to count on money from his original plan to end Bush-era tax cuts for the wealthy. He agreed to extend those cuts for two years under a deal with Congressional Republicans in December.

Last year Mr. Obama proposed limiting tax breaks for charitable gifts to 28 percent for wealthy donors, down from the current 35 percent. The idea was controversial, but he has more ammunition for some kind of change this year.

A majority of members of his bipartisan deficit commission in December proposed converting the deduction to a 12-percent tax credit and limiting it to people who had donated a certain percentage of their income. Several other groups have in recent months also proposed changing the tax break, echoing Mr. Obama's complaint that the current system is unfair because it gives a bigger break to people in higher tax brackets.

Will he propose new money for AmeriCorps and other national-service programs?

Last year he proposed increasing the 2011 budget for the Corporation for National and Community Service, which operates those programs, to $1.4-billion, up from $1.15-billion. That included $60-million for the Social Innovation Fund, which provides grants to expand effective social projects—up from $50-million.

What will he propose to replace Community Service Block Grants?

The White House announced that it wants to cut those grants—which support grass-roots groups that work in poor communities across the country—in half, to $350-million. The money is now allocated to states according to a formula based on the number of people in poverty. But the White House wants to transform the remaining $350-million "into a competitive grant program so funds are spent to give communities the most effective help."

In one of the few other proposed cuts the White House has announced in advance, the president wants to trim the Community Development Block Grant program—which provides money to nonprofits and others for projects to improve low- and moderate-income neighborhoods—by 7.5 percent, or $300-million.

Will he propose a big increase in the Promise Neighborhoods program?

Promise Neighborhoods, a project that provides grants to help nonprofits set up poverty-fighting projects modeled on the Harlem Children's Zone, was one of the efforts Mr. Obama wanted to be a signature of his administration.

Last year Mr. Obama proposed spending $210-million in 2011, up from $10-million in 2010. But even Democratic-controlled Congressional committees balked at that. A House subcommittee proposed spending only $60-million and a Senate committee only $20-million.

What else might get cut?

Several news publications have also reported that he proposes to cut $2.5-billion from the Low Income Home Energy Assistance Program.