Last month, 194 charities in the United States collectively requested $60 billion from Congress to ”maintain operations, expand scope to address increasing demands, and stabilize losses from closures throughout the country.” At first glance, it may seem reasonable to support this request for an “infusion of support.” Ten percent of the U.S. GDP is made up in the nonprofit sector; nonprofits are the first responders and “shock absorbers” to the crises hitting the economy; and gifts to nonprofits are likely to decline as people are busy watching their stocks fall and their grocery stores empty.
Without a doubt, we do not want to witness a massive contraction of the nonprofit sector—massive layoffs, cutting programming and services, and setbacks in mission advancement.
At the same time, the federal government should not be in the business of providing bailouts, including the eyebrow-raising bailouts included in the CARES (Coronavirus Aid, Relief, and Economic Security) Act, with $29 billion in direct grants to the airline industry, $25 million to the John F. Kennedy Center for the Performing Arts, and $12.5 trillion to institutions of higher education (with almost $9 million going to Harvard University supplementing their $40 billion endowment). If emergency funds are to be distributed for the sake of the nonprofit sector, they should originate from local and state levels and be directed towards the local nonprofits that are actually fighting the impact of the virus on their community or severely impacted by the current crisis.
But such local nonprofits are not represented in the charitable sector’s request.
It takes three, single-spaced pages to list all of the signing organizations. Among them are the U.S. Soccer Foundation, Special Olympics International, and the National Fitness Foundation. These organizations, like many of their co-signers, do important work in our country—but the importance of their work alone is a weak basis for a government bailout.
What’s more, the vast majority of the signing organizations are not local nonprofits operating on a threadbare budget. These are well-heeled, well-endowed nonprofit behemoths. Consider the assets held by some of these organizations that signed the request: American Heart Association sits on a $1.4 billion endowment; the American Cancer Society just surpasses that with a cool $1.6 billion; and the American Red Cross doubles ACS with a $3.2 billion reserve.
These are institutions doing important work; but these are not institutions finding themselves in sudden financial risk and worrying how they will get through this crisis. Good on them for successful fundraising and smart planning. But why does it fall suddenly on taxpayers to involuntarily prop up these well-invested organizations?
Some of the signing organizations are helping to flatten the curve. The American Red Cross is responding to the COVID-induced blood shortage caused by the 2,700 blood drive cancellations by taking extra safety precautions at blood centers and offering more ways for volunteers to schedule blood donations. However, with assets of $3.2 billion, they will more than likely be able to maintain operations, expand their scope, and quickly stabilize losses without an “infusion of support.” This stability, of course, stands in stark contrast to the thousands of nonprofits doing work just as important as the Red Cross, with far fewer assets and no representation in the $60 billion request.
This of course brings to mind decisions made during the 2008 recession, when the “too big to fail” banks were lining up for government bailouts and crowding out the small, more at-risk local banks that many small communities and small businesses depended upon. Now again we see the nonprofits with millions and billions of dollars in assets eager to crowd out the small, local, at-risk organizations that are serving at the community level across the country.
In 2008, the small banks—and now in 2020, we can predict, the local nonprofits—failed as a result of the government bailout facilitated by T.A.R.P. (the Troubled Asset Relief Program), which steered $700 billion in taxpayer money into financial institutions and banks (and later General Motors). This money mostly went to the biggest banks, as evidenced by the fact that eighty-five percent of banks that failed between 2008 and 2011 were small banks—those banks that supported small, local businesses and were often philanthropically involved in their communities.
To address the effects of the pandemic, there are two options in the philanthropic space. Throw money at the biggest, most visible institutions just as the federal government did in 2008—or solve this problem the way it should be solved: locally.
There has already been success for cities that have chosen the second option, that is, taking local initiative to address the needs of their communities as they pertain to the pandemic. The City of Philadelphia established the PHL COVID-19 Fund alongside local businesses and foundations and is distributing more than $6 million in funds to nonprofits local to certain counties in Philadelphia and New Jersey. These organizations are aware of, and capable of, dealing with the immediate dangers posed to seniors, disabled persons, and the homeless by the pandemic. Similarly, two funds have been launched in Cambridge, Massachusetts, also from the support of the city, donors, and local businesses. The Cambridge COVID-19 Emergency Fund will provide direct financial assistance to individuals and families as well as vulnerable communities in Cambridge and the surrounding areas. The Cambridge Artist Relief Fund will be dedicated to supplying financial aid to individual artists and arts and culture institutions who are not receiving income.
I would be remiss if I did not also point out the positive aspects of the CARES Act. While it included certain bailouts, the universal charitable deduction and waiving the limit on how much an individual can deduct are wise measures that even the playing field for nonprofits. These decisions stimulate charitable giving without privileging certain organizations over others.
It’s true—local charities are shock absorbers for blows to the economy, and damage to these charities is damage to the communities and individuals they serve. But federal bailouts to national mega-nonprofits do not protect those vulnerable charities actively supporting communities and individuals.