Fiscal cliff, proposed solution threaten nonprofits' ability to operate

BY WAYNE GREENE World Senior Writer
Thursday, December 13, 2012
12/13/12 at 7:54 AM

A trip over the fiscal cliff could have a "staggering" impact on nonprofit agencies, but one of the solutions being discussed to avoid that problem could be just as bad, the head of the Oklahoma Center for Nonprofits said.

Nonprofits that rely on federal funding could see their finances devastated if congressional Republicans and the White House cannot make a deal to avoid a series of automatic spending cuts and tax hikes scheduled to go into effect at the end of the year, said Marnie Taylor, president and CEO of the center.

"The arbitrary, across-the board spending cuts to domestic programs scheduled to take effect Jan. 2 will be added on top of four straight years of cuts at the local, state and federal levels, including $1 trillion in cuts authorized by Congress in recent years," she said.

Nonprofits that rely on Head Start and Medicare funding would be especially hard hit, Taylor said.

Oklahoma Head Start providers would stand to lose more than $7.6 million if the fiscal cliff is breached, she said.

Steven Dow, executive director of Community Action Project of Tulsa County, the local Head Start agency, said the program has enough funding from various public and private sources that there is no danger of an immediate crisis if there is not a spending deal on Dec. 31.

Head Start funds 1,351 students ages 3-5 in 75 Tulsa County classrooms and another 300 early Head Start students under age 4 in 29 classrooms.

Over time, if there is no resolution to the federal funding situation, the Community Action Project would have to look closely at the situation, Dow said.

"It's critical," he said. "If it were not resolved quickly, we would eventually have to take a look at what our strategy would be going forward."

Some smaller Head Start agencies that don't have as much budgetary flexibility might face a more critical situation sooner, he said.

"They likely would be living more hand to mouth," Dow said.

Cliff Lee, interim executive director of the nonprofit Hospice of Green Country said a threatened 2 percent cut in Medicare payments and a 27 percent cut in Medicare physician reimbursement rates - both potential results of a budget impasse going past the end of the year - pose a serious threat to the United Way agency.

About 95 percent of the hospice's patients are Medicare clients, he said.

Although the effect of going over the fiscal cliff would be unevenly felt in the nonprofit world - groups that contract with the government would feel it strongly while others might not - one change to federal income tax law that is being discussed as a fix to the nation's budget problems would hurt all charitable organizations.

Eliminating the tax deduction for charitable giving would hurt every church, arts group and help agency, Taylor said.

Without tax incentives to give to charities, donors would give less or give nothing at all, she said.

Lee said that potential also sends chills through his agency because it would restrict its ability to raise money at the same time that donors would be seeing less income because of payroll tax increases that could also result from a tax and spending impasse.

Taylor said that at the same time that taxes were going up and federal spending was going down, more people would likely be seeking the help of nonprofit charities as the government offered fewer services and the economy shrinks in response to the likely crisis, she said.

"It's a vicious cycle," she said.

What is the fiscal cliff?

The fiscal cliff is shorthand for a series of federal tax and spending changes that take effect at the end of the year.

Several tax cuts that date to the George W. Bush administration will expire, raising income tax rates across the board.

Many key tax deductions and exemptions would also expire, and estate and payroll taxes also would go up.

At the same time, a federal law that was passed during the debt ceiling debate of 2011 would mandate $1.2 trillion in budget cuts evenly split between defense and domestic discretionary spending (with some programs, including Social Security and veterans benefits, exempted).

At the same time, a federal law that delays the effect of cuts of Medicare reimbursement rates would expire, rapidly cutting the funds going to medical providers and likely leading to many doctors being unable to afford to take on Medicare clients.

At the same time, the failure of Congress and the White House to come to an agreement could lead bond rating agencies to reduce the nation's credit, which could substantially increase the cost of servicing federal borrowing.

Economists have estimated that the effect of the sudden cut in government spending and the sudden increase in taxes could cut 1 to 2 percent from the nation's economic growth for the year, and possibly send the national economy back into a recession.

Republican and Democratic leaders agree that the fiscal cliff must be avoided, but their strategies are sharply divided with President Barack Obama insisting on a tax-rate increase on the top 2 percent of wage earners and Republican House leaders calling for no tax rate increase, but more reform to federal entitlement programs.

Original Print Headline: Cause for concern

Wayne Greene 918-581-8308
wayne.greene@tulsaworld.com

Associated Images:

Teacher Angel Armstrong works with 4-year-olds on a song activity during an after-care Head Start program at the Eastgate Early Childhood Center. Programs such as Head Start could be severely affected if the so-called fiscal cliff in federal funding is not resolved, nonprofit organization officials say. MICHAEL WYKE / Tulsa World

Teacher Angel Armstrong works with 4-year-olds during a after-care Head Start program at the Eastgate Early Childhood Center. MICHAEL WYKE / Tulsa World