June 10, 2004

Ronald Reagan Helped Philanthropy, Despite How Much Nonprofit World Objected to His Policies

Although he entered office with greater expectations for philanthropy than perhaps any national

leader since Herbert Hoover, the irony of Ronald Reagan's presidency is that much of the nonprofit world's leadership wound up opposing key elements of his plans to stimulate the economy and reduce the size of government. Yet, 20 years later, his policies turned out to have helped philanthropy far more than harmed it.

Mr. Reagan, not surprisingly, looked to private organizations -- especially nonprofit groups -- to "pick up the slack" for cuts in government programs, as one of his advisers infelicitously put it. Early in his presidency, he appointed the Task Force on Private Sector Initiatives, which was headed by one of the nation's leading corporate philanthropists, C. William Verity, the steel executive (and future secretary of commerce). The task force was designed to help federal agencies transfer responsibilities to nonprofit groups, as well as find ways to overcome barriers that prevented philanthropy from doing more to help the public, including such impediments as laws that exposed charities to excessive damages while conducting their activities. Its impact, however, was small.

A large part of the reason was that nonprofit organizations themselves rejected the notion that they could (or should) be expected to replace government programs. Spearheaded by Independent Sector, a national coalition of charities and foundations, a vocal protest movement got under way. The protests were spurred by research conducted by the Johns Hopkins University scholar Lester M. Salamon and others who emphasized that many nonprofit groups had become dependent on the very government grants that the Reagan administration's budget proposals were seeking to reduce or eliminate and that private support could hardly begin to make up for the losses. Donors established "emergency funds" in several communities to help charities offset the effects of the "cutbacks."

Nonprofit leaders also accused the Reagan administration of erecting new obstacles to philanthropy at the same time it was seeking to demolish old ones. Its supply-side economics agenda of lowering tax rates, especially on upper-income earners and investors, they argued, would reduce the financial incentive to make a charitable contribution by lowering the value of tax write-offs for donations. Though ostensibly aimed at limiting the ability of government grantees to lobby with government funds, new rules proposed by the Office of Management and Budget were portrayed as an effort to restrict lobbying by charities on behalf of the people they served. A new organization -- OMB Watch -- was even created to oppose the advocacy limits.

Twenty years later, it is hard to understand what all the fuss was about. Government spending on some programs that benefited nonprofit groups, such as the Comprehensive Employment and Training Act, which financed jobs programs run by government and charities, was cut. But spending on other programs that also affected nonprofit groups, such as Medicare and Medicaid, grew rapidly. As a result, and to the consternation of some conservative supporters of the Reagan administration, government payments continued to account for roughly one-third of nonprofit revenue.

Tax rates were reduced and loopholes closed as well, but in the Reagan years, charitable giving rose by more than 25 percent in inflation-adjusted dollars, twice the rate of the previous decade. During the 1980s, after a period of stagnation, new foundations began to be created again, and corporate giving, as a percentage of pretax profits, reached an all-time high. In the 1990s, tax rates -- despite a small increase early in the decade -- remained below their pre-Reagan levels, and philanthropy grew even more rapidly as the economy picked up speed.

After negotiations with business and nonprofit groups, the Reagan administration eventually did place new limits on the political activity of government grantees. But as scholars have shown, the 1980s was a decade of increasing activism by civic groups, which, in some areas, such as environmental policy, became as influential as corporate lobbyists. Whatever effects the rules may have had in deterring some organizations from becoming involved, they did not discourage many others, especially as private donations increased. In the 1990s, this growth in political activity by nonprofit groups led to calls for new regulations on government grantees and their private financial backers that went far beyond what the Reagan administration had contemplated.

To be sure, the Reagan administration's actions shifted the type of government support available to nonprofit groups. No longer would they get as much from the relatively predictable grants and contracts. Instead they were increasingly to be reimbursed on the basis of the services they actually provided to the needy, elderly, mentally ill, and others eligible for federal help. Likewise, as giving grew, so did the number of organizations seeking funds, with the result that charities had to work harder to reach potential donors and make an effective case for gifts.

The landscape for philanthropy, in other words, became more challenging and competitive during the Reagan years. It also became one that other organizations, including for-profit ones, started to enter and even dominate, such as in the health-care field. Marketing became of paramount importance because it allowed organizations to showcase why their programs were special and deserving of support.

To some in the nonprofit world, this part of the Reagan legacy is the most problematic. By encouraging charities to behave more like businesses that rely on customers, rather than act like quasi-governmental ones, the administration's programs, some of Mr. Reagan's critics believed, put at risk nonprofit groups' commitment to serving the public and meeting the nation's most pressing needs.

But at the heart of Ronald Reagan's political philosophy was the view that government had no monopoly on the public interest or did not necessarily best understand the nation's needs. Applied to philanthropy, this meant that nonprofit groups should be less dependent on government grants and contracts so that they could be freer to pursue both their own ideas about the public good and those of their supporters. Because they would need to collect fees for their services, they were also held more accountable to the people they were supposed to serve. Let philanthropy be philanthropy, Mr. Reagan was, in essence, saying, and his accomplishments in office moved it in that direction.

At a time of increased questioning of how the nonprofit world works, and proposals for new government regulations (or perhaps even worse, new public-private partnerships), Mr. Reagan's legacy of confidence in the ability of philanthropists and other private organizations, if left to their own devices, to improve American life is as relevant today as it was two decades ago.

Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. During the Reagan administration, he served in several appointive positions. His e-mail address is llenkows@iupui.edu.