Posts Tagged ‘IRS’

Dear Nonprofiteer, Who’s really to blame for bogus job descriptions and pathetic salaries?

April 5, 2012

Dear Nonprofiteer,

I was hoping you might be willing to follow up on your last post on your blog because I felt it was incredibly powerful. I hope it is being reblogged and reposted as much as it should.

What does a professional do when they see a job that sounds amazing but the salary is lowballed? Do you address it in a cover letter, if they gave an insultingly low number outright in the job description? What about when it sounds great and you get an interview and they make an offer and it is $15K less than what’s in line with the position? I know anyone can just simply decline, which I’ve done myself.

But I feel like leaders in the sector have a duty to say something, to help move towards realigning expectations of founders and staff who offer insultingly low pay, especially for organizations that offer critical services that honestly won’t select themselves out of the sector. What are your thoughts on this?

It doesn’t seem like we’re at a transparency point in the sector where we can say, “If you want the best candidate for the position you have to pay competitive wages, if you want the fourth or fifth best or most desperate candidate, you can get away with what you’re offering.”

Of course, I feel particularly stung after two painful lowball offers in the past four months that I’ve had to turn down, but that’s sort of beside the point. I never realized that this was such a pervasive problem. It seems especially bad in Chicago, for whatever reason, compared with my compatriots in DC, SF, and Seattle.

Sincerely, Looking at the Bigger Picture

Dear Looking,

The Nonprofiteer understands there to be two parts to your question.  The first is, “What is a professional to do when faced with an unacceptably low salary offer?”   The answer to this is that you have nothing to lose (but your chains) by responding—in person or in writing—”I realize you may not be as familiar with the nonprofit job market as I am, given that your agency only looks for an Executive Director once every many years; but the amount you’re offering isn’t suitable to the position you’ve described.  The range is more like [and then cite the minimum you'd accept and the maximum you can really envision].”  There are only two possible answers to this: “Well, we don’t have that kind of money and don’t intend to get it,” in which case you know you’re dealing with a Board of Directors you wouldn’t be able to manage anyway; or “Oh, really?  Well, is there any way we can make this work?” in which case you’re suddenly negotiating.

There’s no need to say, or even think, that an offer is insulting: if you can’t assume good faith on the part of agencies, at least recall that they derive no benefit from insulting prospective employees.  Though it feels otherwise, no one is commenting on your qualifications by offering you a low salary.  They’re simply hoping they can get someone great for cheap, which if you think about it is the entire nonprofit model.  So consider yourself someone whose first task is to educate your prospective employer about how things ought to work.  Again, if the employer is uninterested in that education, good riddance to bad rubbish; whereas if it’s interested, you may actually be able to get to ‘yes.’

But your second question is of much broader application: What would it take for the sector to begin to offer wages that are appropriate to the skill level being sought?  And the answer to that, as to most questions about how to fix nonprofits, is ‘more money and more understanding from big institutional funders.’  As long as foundations and social venture capitalists pound the drum for a strict ceiling on administrative expenses, nonprofits will continue to skimp on paying for talent.  The people with money are the thought leaders in the sector (isn’t that always the way?), and they’ve made it acceptable to answer reasonable salary demands with the enraging, “Well, no one goes into nonprofit work to get rich.”

Take a look at Watkins Uiberall’s excellent comparative compensation survey from 2010.  Though it’s from Tennessee and from two years ago, it will provide a basis for conversation about what’s appropriate for many jobs in the sector.  As data like these are spread (including by prospective employees), employers will come to understand the way things really work, vs. their fantasy of hiring President Obama for a community organizer’s stipend.

Nonprofit Boards, meanwhile, should consider the non-trivial possibility that shorting their employees on salary and benefits will ultimately lead to a unionization drive.  The Nonprofiteer is a union girl herself, but most Boards of Directors and nonprofit managers don’t agree.  So somewhere in any conversation about salaries one might gently slide in the question, “If your pay scale is so low, how do you avoid the unions?”  You won’t get an answer but you’ll be providing food for thought, and the longer employers chew on it the less chintzy they’ll be.

Existing forever versus doing some good

March 28, 2012

An op-ed piece a few weeks ago in the Wall Street Journal (behind a paywall)  argued that donors should construct their foundations to spend down assets as rapidly as possible, lest the foundations end up supporting causes their donors would revile.  This familiar argument comes with a familiar whipping-boy: the Ford Foundation, whose enthusiasm for assisting the poor and marginalized was certainly not shared by its eponymous founder Henry.  The op-ed piece, like many of its kind, focuses on the question of donor intent, arguing that only a brief payout period can assure that the donor’s intent is served.

The Nonprofiteer has never cared particularly about the intent of dead donors.  First of all, they’re dead, and while death may not extinguish intent as a matter of law it certainly does as a matter of common sense.   Second, how much better off do we really think the world would be if Ford’s foundation had spent all its money on Ford’s enthusiasms, such as promoting publication of the scurrilous anti-Semitic tract The Learned Protocols of the Elders of Zion?   Third and most important, the  tax-free status of foundations is supposed to encourage philanthropy, not the accumulation of permanently idle tax-free money.

The Nonprofiteer has long argued that the minimum expenditure required of foundations is way too minimum, and that setting up a structure to give away 5% of income shouldn’t entitle a donor to a 100% tax shelter–whatever his/her intent.  Most likely that intent was to escape from taxation, without too much more thought than that.

So let’s think about the issue not from the standpoint of donor intent but from the standpoint of social good.  Which is more useful for a philanthropy: remaining around in perpetuity, to grapple with issues that may arise a generation or three from now, or spending down in the present and relatively short-term future on issues the donor understands and cares about and which in any case are currently urgent?  From the phrasing you can tell the Nonprofiteer’s position: spend it down.

Julius Rosenwald saw the wisdom of this approach when he created a program of fellowships for African-American artists for their professional development.  Rather than keep the fellowships around in perpetuity, he ordered that the principal be awarded completely within 5 years of his death.  As a result, virtually every mid-20th-Century African-American artist you’ve ever heard of received a Rosenwald Fellowship: Ralph Ellison and Romare Beardon and Katherine Dunham and Gordon Parks and many others.   The value of what Rosenwald did, giving artists enough money so they could work without fear or distraction, is literally incalculable.

But also as a result, virtually no one remembers Julius Rosenwald, or at least not his fellowship program.  So that presents the question: are we in the business of fostering greatness, or memorializing it?  Is remembering a donor as important as creating work through a donor’s generosity?  Again, to the Nonprofiteer the answer is self-evident.  She’d rather be grateful for Ralph Ellison than to Julius Rosenwald.

Look, here’s the deal: people will make money in every generation, and in every generation some people will make a lot of money.  If we tax them properly they’ll look for the opportunity to shelter their money in philanthropy.  Why shouldn’t we tax them so that they’re motivated to spend it philanthropically, too?  Like the proverbial Fifth Avenue bus, another chunk of  money will be along any minute.

Sure, there’s a risk of spending too rapidly and with insufficient research (or “due diligence,” as people are fond of saying when they want to pretend that the nonprofit sector is really just like a business).  But the greater risk is the situation in which we find ourselves now, where philanthropies give out amounts insufficient to make any significant change.  No, philanthropy isn’t supposed to be society’s primary source of support, but while people are busy starving government so they can drown it in the bathtub, private wealth can and should step into the breach.

Consider the contributions of the Gates Foundations to the Global Fund to Fight AIDS, TB and Malaria. Can anyone really argue it would be better to hold back on eradicating those diseases, in case there’s some bigger plague later on?  If there is, as AIDS itself demonstrates, we’ll mobilize and raise money for it.  Meanwhile, in case of every ailment, time is our enemy: the later we provide resources, the harder it will be for those resources to have impact.  Thus wasting money is a less significant risk than failing to spend enough to make a difference.

Two things need to happen: philanthropists themselves need to organize their giving so that it ends within a reasonable time after their death, and Congress needs to modify the tax code to require philanthropies to pay out more each year to retain their tax-favored status.  A 10% annual payout–double the current rate–may end up causing philanthropies to dip into principal, maybe even until they’re empty.  But remember the words of Citizen Kane as he contemplated the financial difficulties of his newspaper empire: ” I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years. “  Let’s take a Kane-like risk of running out of money.

One more story: Some time in the ’90s Joan Kroc stood up at a Ronald McDonald House benefit to announce her annual gift.  Rumor had it she was actually going to make a five-year pledge, and the Nonprofiteer’s table indulged in the parlor game of trying to figure out just how much that would be.   We figured the previous year’s gift ($5M) plus a little bump (so $6M) for each of 5 years, and settled on $30 million.  And then she rose to speak, a little woman holding a torn-off piece of yellow legal paper in her hand.  And she said, “I was going to make a 5-year gift, but then I thought: ‘The need is now.’  So tonight I’m giving $50 million to Ronald McDonald Children’s Charities.”  Everyone at the table fell back in her seat, literally knocked over by her generosity, and also by her insight: The need is now.

Aside from Ronald McDonald, Mrs. Kroc mostly supported causes her late husband disapproved of.  If only he’d given more in the present, he wouldn’t have had to contemplate a future in which his money went to places he despised.  So the donor’s intention and the sector’s need are in sync:

Spend it now.

More on the Buffett challenge

February 3, 2012

When Warren Buffett challenged Mitch McConnell to help him pay down the deficit, McConnell paid him no never-mind—but a teenage girl in Northbrook, IL heard and responded, sending $300 to the Feds and asking Buffett to do the same.  This is an adorable story, and the video makes it more adorable still.

But let’s not let this young woman’s sense of civic duty and remarkable act of civic participation distract from the real point of the Buffett challenge, which is that without increased taxation of the wealthy, jerks like Mitch McConnell will free-ride on public-spirited souls like Katie Murphy.

The billionaire vs. the free riders

January 13, 2012

The Nonprofiteer’s readers might enjoy this account of a pissing match between Warren Buffett and Mitch McConnell.  The Senator from Kentucky has been urging the Sage of Omaha to make voluntary contributions to the Treasury if he felt he was undertaxed.  Buffett has now responded that he’ll match any such contributions made by Republican Senators.

This dialogue makes in a different form Milton Friedman’s point as recounted by the Nonprofiteer yesterday.  Voluntary contributions to reduce poverty (or do any of the other things we rely on the government to do) are insufficient, because everyone would be willing to pay his/her share only if s/he could be sure that everyone else would be willing to pay his/her share.  Otherwise, no dice.

Doubtless McConnell will ignore Buffett’s challenge and continue his nonsensical bluster about Buffett’s freedom to pay extra if he feels “guilty” about his low tax rate.  But the point isn’t, of course, how Buffett feels, or even what he does—it’s what everyone else does.  And if McConnell and his buddies don’t donate to the Treasury, then they are poster children for the free-rider problem—thereby proving Buffett right: philanthropy is not sufficient and taxation is necessary.

H/T the indispensable Rick Cohen at The Nonprofit Quarterly.

Taxes vs. philanthropy: the view of a raving lefty

January 11, 2012

I am distressed by the sight of poverty; I am benefited by its alleviation; but I am benefited equally whether I or someone else pays for its alleviation; the benefits of other people’s charity therefore partly accrue to me.  To put it differently, we might all of us be willing to contribute to the relief of poverty, provided everyone else did.  We might not be willing to contribute the same amount without such assurance.

Therefore, this wild-eyed radical continues, the government must step in.  If poverty is to be alleviated, everyone must be taxed so that no one gets a free ride to the benefits of poverty eradication.

How appalling!  How socialistic!  Of course, what else could one expect from an ivory-tower academic complete with Nobel prize?

No, not that one (or even that one): Milton Friedman.

When the man said “There ain’t no such thing as a free lunch,” he meant it.

H/t Allen R. Sanderson.

At war with oneself over the charitable deduction

January 10, 2012

From an article in the New York Times whose date the Nonprofiteer neglected to notice:

“It’s admirable when people back their charitable impulses up with donations,” said Scott Klinger, tax policy director of the group Business for Shared Prosperity.  “But the tax code shouldn’t allow the wealthy the kind of loopholes that let them, essentially, force other taxpayers to underwrite donations to their pet causes.”

“The kind of loopholes . . . “  Is there some other kind?  That is, can we have the tax code encourage individual generosity without delegating to private individuals decisions about what constitutes the public good?  The Nonprofiteer doesn’t see how.  Either you have a tax subsidy—which means by definition that other taxpayers bear a bigger burden—or you don’t. 

Without the subsidy, current donors might give less but the government would have more to give out to public causes (health, education, welfare) now privately supported.  And perhaps without the subsidy, current donors would be replaced by those less-burdened other taxpayers in a burst of their own generosity.  And maybe this would mean fewer snow-globe museums and more attention to human services in the nonprofit sector.

Or maybe it would just mean a reduction in charity and an increase in the government’s resources, which could then be used on public education and public housing.  Or missiles and drones.

This is why the Nonprofiteer remains at war with herself over the charitable deduction.  She wants a thousand flowers to bloom.  She believes any free society requires a counter-balance to whatever the current government has decided about anything.  And she believes this counter-balance requires money.  The whole point of the nonprofit sector is that it permits people to identify and respond to their own needs in their own communities, producing a closer fit between service and community than is possible with centralized programs.

But she also believes that society-wide priorities should be funded society-wide, which means limiting the number of pots of money exempted from inclusion in the public fisc.  And she doesn’t want society-wide priorities to be determined by people who have so much money they can buy entire public school systems and experiment on them.

To quote the great Yul Brenner: Is a puzzlement.

Guest post: One Book, Three Challenges

January 1, 2012
by Lesley Rosenthal

Good Counsel: Meeting the Legal Needs of Nonprofits
by Lesley Rosenthal
(John Wiley & Sons 2012)

As I embarked on writing Good Counsel: Meeting the Legal Needs of Nonprofits, well-meaning and concerned folks cited at least three reasons why no one had written such a book before, and (implicitly) why I shouldn’t try: it’s too dangerous, too hard, too scary.

The “too-dangerous” crowd, personified by some of the most successful leaders of nonprofit turnarounds on several continents, worried that legal information in non-lawyers’ hands would result in the unlicensed practice of law by a bunch of irresponsible, budget-strapped do-it-yourself nonprofiteers. Who knows what kinds of mission mischief non-lawyers would make with their newfound knowledge – the legal equivalent of sewing your own sutures! Fortunately my own boss, the President of Lincoln Center, and several of my other mentors before him, including a former Bar Association president and a federal judge, helped forge my conviction that the law belongs to the people. They encouraged my desire to put it into plain English for all to know.

The “too-hard” folks, also well meaning, recognized the enormous variety of laws that commonly arise in nonprofits and thought it impossible to provide a general overview in one volume. I know what they meant: the tangle of specialized state and federal laws that make our sector one of the most highly regulated in the whole economy, such as state nonprofit corporations laws, Section 501(c) of the internal revenue code, IRS rules, regulations and expectations surrounding the tax exemption and good governance, multi-level filing and disclosure requirements, pension, endowment and investment laws, lobbying restrictions, and a web of 50 different states’ fundraising laws. Many fine books have been written on each of these subjects, but rare is the legal resource that touches upon them all. Then, the skeptics continued, there are also general business laws that apply to these organizations – contract law, labor and employment laws, intellectual property laws, consumer regulatory laws, real estate laws, building codes and more. And business laws apply to the nonprofit sector in weird ways not necessarily intended by lawmakers, forcing volunteer-driven organizations, for example, to think long and hard about how to structure their activities to comply with minimum wage and hours laws. Pile on top of all of those layers the additional specialized laws that apply to the wide world of nonprofits, such as FDA regs for blood banks, student privacy laws for higher ed, permitting and accreditation for hospitals and mental health facilities and so on, and the whole enterprise of writing a book about the legal context of nonprofits threatens to die under its own weight.

The “too-scary” people are the most sympathetic people of all. They are the good-hearted lawyers who are already serving as counsel, as board members – or as both simultaneously – to nonprofit organizations. Their values may line up perfectly with the mission of the organization they serve – an elder care lawyer, for example, serving on the board of a community-based senior center, a real estate lawyer counseling a neighborhood development organization, a sports and entertainment lawyer doing board duty on her town’s local Little League or scout troop – but their legal expertise may be far afield of the legal issues facing the organization. It scares them to no end when a legal question arises in the boardroom and all eyes turn toward them. UBIT – what’s that? Conflict of interest policy pertaining to co-investment interests? Ugh. Section 501(h) election for lobbying activities? Isn’t this meeting almost over? They could have just begged off answering these questions – that’s not my area of law, you see, you wouldn’t ask a dermatologist about your chest pains, would you? – if only Good Counsel didn’t exist to connect the dots between the law they do know and the law they need to know to better serve their favorite charity.

Good Counsel is intended – charitably – to defy all three objections. In 300 pages it places the law of nonprofits in the hands of board members that oversee and executives that actually run the organizations – CEOs, CFOs, program managers and staff, fundraisers, personnel directors, communications professionals, operations and facilities managers and more. Does it answer every question? No. Does it sensitize non-lawyers to common legal issues in the highly regulated context in which they operate? I sure hope so.

Lawyers who make their living practicing in this field needn’t worry that this one volume will displace them; to the contrary, placed in the right hands, the book will generate more sophisticated questions and ultimately more and better client relationships. Corporate and transactional lawyers who have not yet found an outlet for their volunteer yearnings – because it seems that most pro bono projects are more aligned with the skills of litigators, not business lawyers – may feel empowered to see how readily they can translate what they know to the legal needs of prospective nonprofit corporate clients.

Law school deans concerned about the criticism being leveled at the entire enterprise of legal education may find a path forward in Good Counsel. With case studies, work plans and focus questions following each chapter, the book lays out a path for law students supervised by clinical professors to engage with a particular nonprofit organization and assess its legal needs – growing the students’ legal skills and stretching their capacities as counselors in ways that will serve them well even if they do end up in private practice after graduation, as most do.

And the legal profession, which despite the canon of lawyer jokes is as public-spirited as any I know, may find that Good Counsel can be used to foster and strengthen more pro bono relationships between lawyers and organizations. There is a great deal of goodwill for nonprofit organizations among public-spirited lawyers. I know, because I have been both a purveyor and voracious consumer of pro bono legal services, that there is more time and willingness to serve among the legal profession than has been fully tapped to date. A pilot program of the New York State Bar Association and the New York Attorney General’s Office Charities Bureau has adopted Good Counsel as a training resource for that very purpose: to help launch up to 50 new pro bono relationships between lawyers and charities in the initial pilot year of a program called Charity Corps: Lawyers Helping Nonprofits.

Far too many of our nation’s one million public charities lack regular access to counsel. At the same time, good-hearted lawyers are floundering in their efforts to help their favorite nonprofits, or are afraid to try because they think the field is so distant from subject matter they know. Law students graduate in debt up to their ears but lacking the practical skills they need to begin servicing clients after law school. Good Counsel is a playbook, intended for all three audiences.

And while I admit it was a little hard, scary and dangerous, ultimately there were far more supporters than skeptics for this project. I invite readers – lawyers, nonprofit leaders, and academics – to take a look and let me know if it works.

Lesley Rosenthal
www.goodcounselbook.com

goodcounselbook@gmail.com

Schedule of upcoming Good Counsel events in NYC, LA, Detroit, Miami, Philadelphia, Boston, DC and Buffalo, NY available on www.facebook.com/GoodCounselBook or at the book’s website, www.goodcounselbook.com.

Available for purchase at http://www.amazon.com/dp/1118084047/ref=rdr_ext_tmb

Review copies for academics, media, upon request to tbatanchie@wiley.com

What should (but won’t) be the last word on the charitable tax deduction

December 20, 2011

The most powerful argument Jack Shakely makes in his LA Times op-ed piece opposing the charitable tax deduction is that it’s a poor trade-off.  The retired foundation executive points out that charities have permitted themselves to be shorn of their ability to influence policy and politics in return for a mess of pottage.  Of course the restrictions on charitable participation in the public arena aren’t as draconian as nonprofit executives (and especially Boards) think they are—but the point is that nonprofits understand themselves to be constrained, and rather than bothering with the details remain quiescent politically.

As strong a proponent as the Nonprofiteer is of the pursuit of individual gifts, in the real world virtually every social service agency needs seriously more government money if it’s going to make any dent in the social problems it faces.  The more social service agencies feel free to advocate for this particular budget bill or that particular provision in a piece of legislation—both prohibited by the current tax-code provisions—the more likely it is that those bills and provisions will pass, which would serve way more of the agencies’ clients than the most blue-sky estimates of their potential for growth in individual giving.

And for someone with foundation cred to say this!  All hail Jack Shakely.

h/t The Nonprofit Quarterly Newswire.

By any other name . . .

November 4, 2011

The Nonprofiteer has never had much time for people who want to change the name of the sector to something non-”non”—something more positive, like “Civil Society Organization,” or less meaningful, like “independent.”  But this article about the connection between Herman Cain’s campaign and a Tea Party front group funded by the Koch Brothers has her rethinking her position.  Under the headline “Cain to Review Links to a Nonprofit” we learn that

An outside lawyer will review allegations that Herman Cain’s presidential campaign accepted tens of thousands of dollars in goods and services from a tax-exempt organization founded by his chief of staff . . .

The front group, “Americans for Prosperity,” is a Wisconsin nonprofit granted at least preliminary 501c3 recognition by the IRS.  And if it were actually nothing more than a group of citizens banded together to advocate for policies they believe will lead to prosperity, there would be nothing wrong with that.  But if instead it’s just a mouthpiece for the Koch brothers—an Astroturf, rather than a grassroots, organization—then there is something wrong.

The IRS requires 501c3s to raise a third of their money from the public precisely to prevent the creation of captive organizations of this kind.   Use of a tax-exempt entity to promote the interests of a single individual or family is a violation of Federal tax law.  Moreover, if the nonprofit paid some of the Cain campaign’s expenses, that’s a violation of Federal election law—perhaps one of the few activities left that is.

The Cain campaign may collapse under the weight of far more interesting allegations (sex beats money every time); but if in fact this nonprofit was nothing more than a campaign slush fund, its existence represents a taint on the “nonprofit” label.  What a shame that “handmaiden to profit and to policies assuring that the profitable get more so and the rest of us get squat” is so unwieldy.

Maybe a new name for the sector wouldn’t come amiss; but let’s be realistic.  The Iron Law of Euphemisms means that whatever name is adopted instead will soon become an epithet itself.  This explains the “progress” in designating African-Americans, from “n****r” to “colored” to “Negro” to “black” to “Black” to “people of color”: as long as people using the term hate the people they’re describing, the term will be infected with their hatred and soon need to be abandoned.

And as long as the wealthiest people using the term “nonprofit” are determined to distort the form to support the worst excesses of the profit-driven world, it hardly matters what the rest of us call it.

The Joyce Foundation, the Independent Sector and the facts

November 2, 2011

Ellen Alberding’s interview with the Chicago Tribune in advance of the Independent Sector‘s meeting in Chicago earlier this week pressed nearly every one of the Nonprofiteer’s buttons.  Ms. Alberding, head of the Joyce Foundation, described the Foundation’s approach to what even she characterizes as a perfect storm of increased need and reduced resources in the nonprofit sector:

We do what any good business person would do when faced with reduced resources. We have become very focused on first maintaining support of our core grantees. Foundations are required to spend a minimum amount — 5 percent of our assets. On occasion, we will overspend that in order to keep our grantees whole.

In other words, business as usual.  Most likely the Joyce Foundation’s governing documents prevent its Board from spending its assets down to zero, but there’s no reason why the Foundation shouldn’t use more than the statutory minimum 5% of its $800 million in assets to sustain the work it exists to support.  Foundations are NOT businesses; they exist to give their money away, and only in some vague theoretical sense is an institution with $800 million facing constraints preventing it from giving away more than $40 million.

If Joyce gave only 6% instead, that would be another $8 million available to nonprofits in its areas of concern—a not-insubstantial 20% increase.   What is stopping the Foundation from doing this, other than a misguided sense that preserving its capital is more important than doing its job?

And then the cherry on the sundae:

It’s the position of the Independent Sector that a cap [on charitable deductions] will reduce charitable contributions across the board and diminish support for nonprofit organizations. I believe it’s the administration’s view that the 28 percent cap might have some impact, but it wouldn’t have a dire impact. (But) I think we have to listen to the organizations themselves, who feel otherwise.

In other words, notwithstanding reality, the prejudices of self-interested parties will dictate the organization’s behavior.    Their minds are made up—don’t confuse them with the facts.  But as President of the organization, doesn’t it behoove Ms. Alberding to make sure her members don’t make their decisions based on fantasy?

Grrrr.


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