Can Philanthropy Fill Government’s Social Services Role?

When Indiana University’s Center on Philanthropy released its 2011 Giving USA report, it painted a picture of a remarkably generous America. In spite of the 2008 Wall Street collapse that devastated the financial portfolios of millions of Americans and wiped out the home equity that represented much of the net worth of millions more, Americans were still finding room in their budgets to give to charity. In 2010, in fact, charitable donations were up 3.8 percent.

Mavis Arnold, CEO Womens Employment Project Inc. Photo by Len Villano

But when digging deeper into the report – the go-to source for a broad picture of the American philanthropic climate – an unsettling trend emerged. Americans were giving generously to universities, the arts, and health care facilities, but donations to domestic human services charities declined a startling 5.8 percent.

This came at the same time that statehouses began to curtail funding for social programs, putting greater demand on charities providing food, housing, and basic needs to our most vulnerable citizens.

Those charities, though technically private nonprofits, rely heavily on government grants to fund programming. Take the Women’s Employment Project (now known as WEP, Inc.), which operates the Door County Job Center and offers energy assistance for qualified households. Director Mavis Arnold said WEP, Inc. receives nearly all of its funding from state and federal grants. Such organizations are getting squeezed by budget cuts on one hand and the changing preferences of donors on the other.

And the worst may still be to come.

A wave of politicians elected on promises of cutting spending are increasingly calling for greater austerity measures, with many of them expecting nonprofits and foundations to fill the gaps in a tattered safety net.

Can the power of philanthropy be unleashed through tax cuts?

Proponents of austerity measures, such as the columnist George Will, see cutting federal and state support for social services as a means to unleash the full power of the philanthropic world. Smaller government means lower taxes, and lower taxes means wealthy Americans will have more money to donate to charities that will fill the societal roles that we have traditionally expected of government.

Columnist Jude Blanchette, writing in The Freeman, a publication produced by the Foundation for Economic Education, argued that private charities do a better job of serving those in need than government.

“Private charities, churches, and mutual aid societies are faced with economic realities and must attempt to decide who truly merits aid, as well as how to best bring about the recipient’s economic independence,” she wrote. “An admittedly subjective process, this helps to eliminate freeloaders, thus allowing more resources to be directed to the deserving poor.”

Paul Schervish, Director for the Center on Wealth and Philanthropy at Boston College, told the Boston Globe that he also believes that lowering taxes on the wealthy would increase giving, but a report by the Congressional Budget Office that looked into the impact of repealing the estate tax concluded otherwise.

That report estimated that $13 to $25 billion in charitable donations would be lost if the estate tax were repealed entirely. That’s on top of $25 billion in lost tax revenue per year to the federal government. That’s because the estate tax, which was applied to estates worth more than $5 million in 2011, encourages people to give to charity during their lifetimes as well as upon their death. The tax incentivizes donating portions of an estate to charity, rather than pay 35 percent of its value to the government. If it were repealed, it’s estimated that most people would simply leave their estate to their heirs.

Richard Rockefeller, great-grandson of John D. Rockefeller, testified that with the estate tax in place, “There’s a strong incentive for us to give more to charity and less to our children.’’

Kevin Murphy, President of the Berks County Community Foundation in Reading, Pennsylvania, said there’s not much evidence to support the theory that lowering taxes increases charitable giving. As taxes on income, investments, and inheritance have been slashed over the past 40 years, the rate of giving by Americans has remained between 1.7 and 2.3 percent of Gross Domestic Product.

“It’s not really clear that changes in tax levels lead to the kind of changes in charitable giving some claim,” Murphy said.

David Miller, President of the Denver Foundation, is another champion of philanthropy who says the expectation that charitable donations can step into the void left by government cutbacks is naïve. In a column for the Denver Business Journal last year he pointed out that “all of the money given away by the nation’s foundations represents just 1 percent of the federal budget.”

Murphy notes that all of the assets of the Bill and Melinda Gates Foundation, the nation’s largest, would fund the federal government for all of 80 hours.

“People ought to have serious conversations about the role of government,” Murphy said, “but injecting that into the public policy debate makes it seem like there’s no pain involved in making these cuts to services. These scales for government funding and private philanthropy are so different. A 10 percent cut in social services probably equals all charitable sector spending on social services.”

Roger Tepe, Director, Door County Social Services Department. Photo by Len Villano.

A crowded market

As state funding is cut, human services find themselves at a tremendous disadvantage when they turn their attention to fundraising to plug their funding holes. Unlike the arts, education, and religion, most human services groups don’t have established fundraising arms and an easily communicated message.

Those making more than $200,000 gave just 4 percent of their philanthropic dollars to organizations providing basic needs in 2005. Educational organizations were the target of 25 percent of donations, religious organizations 17 percent, and arts organizations 15 percent.

When the funding for the Door County Sexual Assault Center was cut 42 percent in the fall of 2011 (the figure was later reduced to 28 percent), it solicited private donations for the small but crucial program that provides counseling and advocates for victims of abuse. The organization found it difficult to raise funds to fill the need.

“It’s difficult to get private donors to support it,” says Tom Martin, President of Family Services Counseling, which oversees the Sexual Assault Center. “It’s difficult to communicate the need. You can’t parade abused children in front of donors.”

Roger Tepe, director of the Door County Social Services Department, explained the dilemma.

“A lot of philanthropy goes to visible things – buildings, children’s educational programs, and parks, which are all great – but they’re not life or death,” he said. “Human services are life and death for many people.”

Part of the reason colleges and arts organizations are so much more successful at fundraising, says Ted Phernetton, the director of Catholic Charities for the Diocese of Green Bay, is that they have a built-in base of donors.

“They have an alumni list of people with a direct connection back to the organization,” he says. “Those people don’t need to be convinced as much by a message. You don’t have to present the cause and substantiate the need at a university or a hospital.”

Human services also have another hurdle to overcome – the stigma that the people who need those services have put themselves in the situation where they need the help.

“For many wealthy people, it’s difficult to understand these problems,” Tepe says. “So few people mingle with the population we see in social services that they don’t think to give for that.”

The geographic have-nots of philanthropy

Bret Bicoy, director of the Door County Community Foundation, is a passionate proponent of the power of philanthropy. It is, after all, his job to sell what philanthropy can do, but he says people can’t expect it to fill the role of government, and not just because there isn’t enough money.

Philanthropy, he says, presents a problem of geography.

“Philanthropy tends to be specific to communities, it’s very geographically based,” he says. “So yes, if you live in the right place, you could rely more – but not entirely – on private philanthropy. If you don’t live in the right place, then no. We see this play out now with public schools.”

Wisconsin’s public schools are funded by property tax dollars, so districts with high property values like those in Door County can spend much more per student than districts with lower property values like those in Milwaukee, Madison, and many of the state’s remote rural districts. When parents and school boards in Door County want more offerings or better facilities, there is a property tax base to draw on if they choose to take the question to referendum.

Tepe says that people simply give more where they have connections and there is a moral pull. It’s a struggle to get people within a community to give to human services, but it’s an even greater struggle to get them to give to those services in another community.

“People really have to feel an ownership, an ingrained obligation, to support these programs in their community, so a poor community would be at a tremendous disadvantage in raising those funds,” Tepe says.

In isolated rural areas, government agencies are often the only ones serving the population. Phernetton says that one of the goals of Catholic Charities is to provide more services to less populated areas, but it’s very difficult.

“You can’t build a charity around 100 people,” Phernetton says. “The charities can’t survive. You can’t build the infrastructure so there aren’t nonprofits there to fill in. So what happens to those folks?”

From 2006 to 2011 Clay Holtzman wrote extensively about the philanthropy sector in the northwestern United States for the Puget Sound Business Journal. Thanks to the presence of several of America’s wealthiest citizens, including Phil Knight, Bill Gates, and Paul Allen, the Northwest is a hotbed of philanthropy news. Holtzman, now the web content writer for the Fred Hutchinson Cancer Research Center in Seattle, Washington, says there’s an inherently discriminatory aspect of shifting responsibility to private philanthropy.

“It’s a skewed advantage for wealthier communities and zip codes,” Holtzman says. “It will affect different sectors very disproportionately.”

Where private philanthropy has the advantage of being free to choose where they want to concentrate their efforts, Bicoy says government officials are elected to determine collective community needs.

“Fair or not, government redistributes wealth to pay for what we have decided as a society are necessities – education, roads, basic health services,” Bicoy says. “Private philanthropy just doesn’t do that as well.”

Phernetton has directed both government and private philanthropic human services organizations in his career. Prior to taking over Catholic Charities he served as the head of the Waupaca County Department of Public Health and Human Services, and before that he spent 10 years as the director of Cerebral Palsy, Inc. There’s no question in his mind that private sector nonprofits can operate more efficiently than government agencies.

“In the general delivery of services and the operations of the organization, private philanthropy is forced to live within its means,” he explains.

Nonprofits don’t have the option to simply raise taxes, he says, but must sell themselves to their donor base. At the same time, they’re not constrained by the strings attached to government regulations.

“Nonprofits are not overly burdened with the bureaucracy of government services and administrative issues,” he says. “As a result nonprofits are much more nimble.”

Though he says government employees work their tails off and do the best they can, they’re also limited by the fact that their programs are usually designed with broad populations and regions in mind. Because government can’t choose what it supports, as charities can, you don’t get a direct, acute response to community needs.

“In government you have an approach to the entire community,” Phernetton says. “So programs get cut across the board, rather than in response to community need.”

In part, Arnold agrees with Phernetton’s take on the strengths of nonprofits over government.

“Those who know their community the best should be the ones providing services,” Arnold said. But she does not feel like her hands are tied by the guidelines and restrictions that come with government dollars.

Private philanthropy is incredibly important, Arnold said, but to expect it to play a role as large as some politicians believe it can is a stretch, especially in services that don’t offer flashy brick and mortar donor drives or the celebrity factor.

“Ours is a tough message to sell, even in a good economy,” she says. “Helping people build the self-esteem to believe in themselves, to believe in their ability get a job and be successful, that’s hard to quantify, and it’s hard to put into pictures.”

She said there’s an additional aspect to the rhetoric surrounding our budget debates and the pitting of private philanthropy versus taxpayer-supported programs.

“Having the endorsement and investment by state and federal government helps us to recognize the value of that segment of society that needs our support,” she says. “We have a responsibility as a nation to make sure that those in need are provided for, to some extent. We have to own the fact that not everyone in our country has the tools to provide for themselves without some support.”

In all of the coverage we give to the budget debates in statehouses, in Washington, and our town halls, it’s a point we overlook. When we so easily discard these services, what message are we sending about the value we place on the most vulnerable segments of our population that use these services?

There may be a bigger role for private philanthropy to play in our delivery of human services. Surely, there are many areas where it would be more effective than government programs. But it’s also clear that before we blindly put our faith in the ability of charity to provide for the least fortunate of us, we need to have a more nuanced conversation about what it can and cannot do – and, more importantly, who it will leave behind.

“What it really comes down to,” Phernetton says, “is who has a voice. The folks served by social services are the most vulnerable in our population, and it’s very difficult for them to have a voice.