News and analysis
April 10, 2013

Obama Budget Shows Promise for Nonprofits

Pat Greenhouse/The Boston Globe/Getty Images

The 2014 budget includes $755-million in grants to the states to expand preschool programs and $1.4-billion to help Early Head Start programs provide care to children from low-income families.

President Obama’s $3.78-trillion 2014 budget would add money to nonprofits that work in education and health care while stepping up efforts to reward groups that can prove they are getting strong results in solving social problems.

But the plan is infuriating many charities with its renewed call to limit the value of deductions for charitable contributions and has already drawn criticism from organizations that serve the nation’s most vulnerable.

Nonprofit advocates who have helped defeat Mr. Obama’s previous attempts to limit tax savings on deductions, including those for charitable gifts, to 28 percent for the wealthiest taxpayers, were already gearing up to oppose the budget plan released today.

But other nonprofit leaders praised Mr. Obama for proposing to expand early-childhood education, invest in poor communities, and expand aid to groups that fight homelessness. They also lauded his plan to reverse $42-billion in domestic cuts made in March as part of the so-called sequester, an automatic spending reduction.

Promoting Volunteerism

The spending plan also proposes to help nonprofits improve their use of volunteers and introduce new worker-training methods.

However, the budget now goes to Congress, where it will face opposition from House Republicans, who want deeper spending cuts and who oppose raising taxes on the wealthy.

“For a budget that’s 65 days late with a Congressional climate that is challenging, we don’t expect this to change the conversation,” says Hayling Price, policy director of the National Human Services Assembly, a coalition of nonprofits.

Preschool Programs

The Obama administration posted a three-page statement spelling out how its budget increases would strengthen nonprofits.

“President Obama believes that we must work as a team with the entire community—including nonprofits, philanthropic organizations, and faith-based and other community organizations—to meet the challenges our communities face,” the statement said.

Indeed, education advocates were thrilled by Mr. Obama’s “Preschool for All” program, which proposes a package of measures to increase access to high-quality early-childhood education, financed by raising the federal tax on cigarettes and other tobacco products.

It includes $755-million in grants to the states to expand preschool programs and $1.4-billion to help Early Head Start programs provide high-quality child care to children from low-income families.

“This is a critical step in making sure every child has the foundational skills for success in the 21st century,” said Kris Perry, executive director of the First Five Years Fund, a nonprofit that promotes early-childhood education.

Health Centers

The president proposed to increase the budget for discretionary programs operated by the Health and Human Services Department—that is, for programs that are not mandatory like Social Security and Medicare—to $80.1-billion, up $3.9-billion over 2012.

Among the winners in that increase: nonprofit community health centers, which would get $3.8-billion, or almost $1-billion more than in 2012. Child-care development block grants, which help states provide child-care services to low-income parents, would rise to $2.48-billion, up from $2.28-billion in 2012.

As part of a broader effort to create new “Promise Zones” to help rebuild high-poverty communities, Mr. Obama also proposed a big boost for the Promise Neighborhoods program, which offers grants to projects that provide an array of “cradle to college” services to young people and families in troubled communities.

The budget for those projects—led by nonprofits working with foundations, schools, businesses, and others—would grow from $60-million in 2012 to $300-million.

Spending on the Choice Neighborhoods program, which offers grants to nonprofits and others to revitalize neighborhoods, would also grow from $120-million to $400-million.

The Housing and Urban Development budget would grow by 9.7 percent over 2012, to $47.6-billion—including by increasing grants to organizations that help the homeless $2.4-billion, a $480-million increase.

The president proposed a flat budget for the Corporation for National and Community Service, which runs the AmeriCorps national-service program, at $1.06-billion.

But he wants to spend $10-million to revive a program to help nonprofits improve their use of volunteers, dubbed the George H.W. Bush Volunteer Generation Fund.

Community Block Grants

Not every social program comes out ahead in the president’s budget. For the third year in a row, he has proposed slashing the Community Services Block Grants program, this time asking for $350-million—down from $677-million in 2012. Mr. Obama repeated his complaint that the program, which provides money to more than 1,000 community-action groups across the country that manage antipoverty projects, “does too little to hold these agencies accountable.”

The National Human Services Assembly released a statement characterizing many of the budget cuts as delivering a “devastating blow to our nation’s most vulnerable communities.”

Mr. Obama continued to push programs that would require nonprofits that receive government grants to show evidence that they are effective.

The budget would create a $300-million Pay for Success Incentive Fund at the Treasury Department to help state and local governments introduce such efforts, while reserving $185-million in an existing fund for programs in job training, education, criminal justice, housing, and disability services.

In a pay-for-success model, nonprofits finance such services with philanthropic and private investments. The government pays the investors back only after the programs generate results that save taxpayer money.

However, some nonprofit leaders say the budget increases are not enough given the number of people who are still suffering from the economic downturn. “There are very important protections for low-income people in this budget. We think that the president’s preschool education initiative is historic and much needed,” said Deborah Weinstein, executive director of the Coalition on Human Needs. “But the budget does not meet the needs of this very troubled economy because it doesn’t raise enough revenue and doesn’t make enough cuts in the Pentagon.”

Wealthy Donors

Mr. Obama’s efforts to rein in charitable deductions are getting the broadest attention in the nonprofit world because they affect such a vast array of charitable causes. He has failed to persuade Congress to limit the value of the charitable deduction in seven attempts, but he proposed trying again on Wednesday as part of a larger effort to make the wealthy pay more to help balance the federal budget.

“If you’re serious about deficit reduction, then there’s no excuse to keep these loopholes open,” President Obama said at a news conference. “They don’t serve an economic purpose. They don’t grow our economy. They don’t put people back to work. All they do is to allow folks who are already well off and well connected game the system.”

Some nonprofit advocates think charities are wrong to oppose deduction limits.

Chye-Ching Huang, senior tax-policy analyst at the Center for Budget and Policy Priorities, said they should support such a tax change because “the revenue is going to help reduce the deficit and to forestall damaging cuts to domestic programs that create burdens on the nonprofit sector.”


Send an e-mail to Doug Donovan and Suzanne Perry.