A Budget Squeeze Hits Charities

Charities and advocacy groups face another year of budget battles as President Bush continues his efforts to squeeze spending

on social services, arts, health care, and other domestic programs at a time when many states are threatening cuts of their own.

Mr. Bush, who unveiled a $3.1-trillion budget for the 2009 fiscal year this month, said the cuts are necessary to help balance the deficit-ridden budget by 2012, provide more money for national security, and preserve tax breaks to stimulate the economy.

Among the proposals that worry nonprofit groups are cuts to Medicare and Medicaid, block grants that help states and cities pay for antipoverty and economic-development projects, and a program to help poor families pay their energy bills. In addition, they said they were particularly upset about cuts to the National Endowment for the Arts as well as proposals to trim spending on public broadcasting and several programs that provide health care and other services to poor people overseas.

“Certainly the numbers look like a continuation of tough times for nonprofits, as has been the case for the last several Bush budgets,” says Alan Abramson, a professor of government and politics at George Mason University and senior fellow at the Aspen Institute’s Nonprofit Sector and Philanthropy Program, in Washington.

A Fight in Congress

The proposals come as the economic downturn and the bursting of the housing bubble are causing more people to seek help from charities while at the same time squeezing the tax revenue of many states, making it harder for them to compensate for federal spending cuts.

Democrats in Congress have criticized the president for turning in a budget that proposes cutting services while also making previous tax cuts permanent — and still including a deficit of more than $400-billion. “We believe that is a very odd sense of priorities,” said Sen. Kent Conrad, the North Dakota Democrat who chairs the Senate Budget Committee, at a news conference. He and others noted that Congress had rejected some of Mr. Bush’s proposed cuts in previous budgets.

But even in his last year, Mr. Bush can wield his veto power to influence the outcome. “Obviously, [the budget] is not going to be enacted as is,” says Nicholas Johnson, director of the state fiscal project at the Center on Budget and Policy Priorities, a think tank in Washington. “But it does send a signal about what he’d be willing to sign versus vetoing and that could lead Congress to self-edit and tamp down spending.”

A few programs would come out ahead under the president’s budget — the State Children’s Health Insurance Program (although at levels below those Congress says are necessary), an abstinence-education program, a fund to help religious charities provide social services, and a new program to help students from needy families attend private or religious schools.

But not everyone believes the cuts the president proposed are a bad idea. Brian Riedl, a fellow at the Heritage Foundation, a conservative think tank in Washington, praised him for including “responsible restraints” on domestic spending. He said money for on programs other than “entitlement” programs like Social Security and Medicare, which must be provided to everyone who qualifies, would grow by less than 1 percent in 2009. But such spending expanded 22 percent from 2001 to 2008 (adjusted for inflation), he said. Furthermore, the budget will not jeopardize social spending, Mr. Riedl wrote in a paper. “Under President Bush, federal antipoverty spending has topped 3 percent of GDP [gross domestic product] for the first time ever.”

Mr. Bush’s 2009 budget included the following specific proposals:

Arts and humanities. President Bush proposed cutting the budget for the National Endowment for the Arts from $144.7-million to $128.4-million, which drew fire from Americans for the Arts, an advocacy group in Washington. “After three years of minimal, but incremental, funding growth, we are sorry to see an attempt at this progress erased,” Robert L. Lynch, the group’s president, said in a statement.

However, the arts group is optimistic that Congress will augment the administration’s proposal, as it did last year. Nina Ozlu, the organization’s chief counsel, notes that the House Appropriations Interior and Environment Subcommittee, which proposes funds for the NEA, last year pushed to allocate $160-million for the endowment, higher than the amount the agency eventually won. The subcommittee has asked Americans for the Arts to help line up witnesses for a hearing on arts spending in April.

The administration proposed a slight decrease in the budget for the National Endowment for the Humanities — from $144.7-million this year to $144.4-million in 2009.

Education. Mr. Bush proposed spending $300-million on a new program, Pell Grants for Kids, to give poor children in failing schools money to attend private or religious schools, or public schools outside their district.

Health. In an effort to rein in the deficit, the administration would cut projected spending on Medicare, the health-insurance program for older people, by about $183-billion over five years by slowing the annual growth rate from 7.2 percent to 5 percent, much of it by decreasing payments to health-care providers. The proposal would also cut projected spending on Medicaid, which provides health care to poor people, by about $18-billion over five years.

That will affect nonprofit hospitals, nursing homes, mental-health facilities, and other health-care groups. A study published by the Aspen Institute last year found that revenue for such organizations was “inextricably linked to Medicaid,” with some $85-billion to $105-billion in Medicaid payments flowing to them in fiscal year 2004.

The proposed cuts in those two areas have alarmed nonprofit groups that provide services to older people. The budget would freeze Medicare payments to nursing homes through 2011 and to organizations that provide home health care through 2013.

The Medicare Payment Advisory Commission, which advises Congress, recommended freezing the nursing-home reimbursements for 2009 because it found that the organizations were making substantial margins on the payments.

However, Barbara Gay, director of advocacy information at the American Association of Homes and Services for the Aging, in Washington, says that the commission did not break out figures for nonprofit nursing homes, which make much lower margins on Medicare payments than for-profit homes — probably because they spend more on staffing.

“Not-for-profit facilities are not making big money on Medicare,” she says. Furthermore, she says, nursing homes tend to lose money on Medicaid — which, according to the Aspen Institute report, is the largest source of revenue for nursing homes.

Health-care groups fought off a proposed Medicare freeze in 2008, but if it goes through this year, nonprofit nursing homes “would have to figure out how to do more with less,” she says. “You can’t cut back on quality, usually you don’t end up closing beds. Many already do a lot of fund raising. That probably would have to be more intensive.”

The administration proposed to increase spending on the State Children’s Health Insurance Program, which provides health care to children from low-income families who don’t qualify for Medicaid, by $19.3-billion over five years. That is significantly more than the $5-billion it proposed last year, but far less than the amount Congress prefers. President Bush has twice vetoed a bill that would increase federal spending on children’s health insurance by $35-billion over five years, to $60-billion.

Housing. The president is seeking a modest increase in the budget for the U.S. Department of Housing and Urban Development, including an additional $50-million to fight homelessness. The president has also asked for $65-million to support nonprofit housing-counseling services designed to assist households facing foreclosure, a 23-percent increase over current spending.

But Mr. Bush has requested a reduction in the Community Development Block Grants program from $3.9-billion to $3-billion. The program provides money to states and municipalities to support housing and economic-development projects. The budget also cuts spending on programs that provide housing for the elderly.

International aid. The administration proposed increasing federal aid to the Agency for International Development to $767.2-million — up from $650.7-million this year. That move was welcomed by InterAction, a Washington coalition of international relief groups, which said it had been pushing “to give USAID adequate resources to complete its critical mission overseas.”

Mr. Bush said the additional money would allow the department to hire 300 new foreign-service officers for a new program, the Development Leadership Initiative, designed to strengthen development projects overseas.

InterAction also praised a proposal to provide $4.8-billion for a fund to fight HIV/AIDS globally (up slightly from 2008) and what it called “adequate funding” ($2.2-billion, up from $1.6-billion) for the Millennium Challenge Corporation, a U.S. agency that helps poor countries develop their economies.

However, InterAction criticized proposed cuts in other programs, including migration and refugee assistance (from $1-billion to $764-million); the Child Survival and Health Programs Fund, which pays for a variety of global health, nutrition, and family-planning services (from $1.8-billion to $1.6-billion); and international disaster assistance (from $429.7-million to $298-million).

National service. Mr. Bush proposed cutting the budget for volunteer programs operated by the Corporation for National and Community Service from $782.7-million to $751.5-million. The National Senior Service Corps — which taps volunteers age 55 and older — would take the biggest hit. Its budget would fall from $213.8-million to $174-million, with most coming out of the Foster Grandparents program, which provides stipends to older people to help disadvantaged and disabled youths. That budget would fall from $109-million to $68.2-million.

Public broadcasting. The administration would take away $200-million of the $400-million that Congress set aside for 2009 for the Corporation for Public Broadcasting, which provides grants to public television and radio stations. (Traditionally, federal funds for public broadcasting are committed several years in advance.) It also proposes cutting $220-million from the $420-million already appropriated for 2010, and making no advance appropriation for 2011.

The administration said the agency should receive money the same way that other federal programs do and “rely to a greater extent on nonfederal funding sources.”

The proposal offers no new money to help public television and radio stations convert to digital formats or upgrade the Public Radio Satellite System. The Corporation for Public Broadcasting said in a statement the “draconian” cuts would slash its budget by 56 percent from 2008. It said it planned to submit a request to Congress for a $483-million advance appropriation for 2011, as well as money in the 2009 budget for digital conversion and other projects.

Social services. Mr. Bush proposed a 22-percent reduction in federal spending on the Low-Income Home Energy Assistance Program, which makes grants to states (which are then often passed through to nonprofit groups) to help poor families pay their utility bills. Money for the program would drop from $2.57-billion to $2-billion.

George Coling, executive director of the National Fuel Funds Network, a Washington association of nonprofit groups and utilities that raise money to help low-income households pay their utility bills, questions the timing of the proposed cut. In the face of a “greater demand than ever” for energy assistance, he says his group advocates increasing annual government support for the fuel program to over $5-billion.

“The federal program currently only serves about 15 percent of those eligible, and with a 22-percent cut even fewer would be served, or the average benefit amount would go down,” Mr. Coling says. “At the same time, poverty is persisting and energy costs for heating and cooling are rising. There’ll be some real hurting if this cut goes through.”

The president’s budget also eliminates the Department of Energy’s $243-million Weatherization Assistance Program, which supports charities and local governments in making homes of poor people more energy-efficient.

“In the face of rising energy costs, it is absurd that the president would propose to reduce help for the poorest energy consumers and to do less to reduce energy consumption and greenhouse emissions of low-income households,” said David Bradley, president of the National Community Action Foundation, a Washington charity that works to strengthen antipoverty groups.

For the third year in a row, Mr. Bush proposed eliminating the Department of Agriculture’s Commodity Supplemental Food Program, which helps food banks provide monthly deliveries of basic groceries to low-income families with young children and the elderly. Last year Congress provided $139-million for the program.

Mr. Bush again also calls for eliminating the Department of Health and Human Services’ Community Service Block Grant program, which received $653-million in 2008. The grants support more than 1,000 antipoverty groups across the country.

The budget would also reduce by $500-million the department’s Social Service Block Grant program, which received $1.7-billion in 2008 to support groups providing a variety of services to low-income families and individuals, including day care, employment counseling, home meal delivery, and transitional housing.

The Compassion Capital Fund, which helps charities and religious groups provide social services, would grow by $22-million, to a total of $75-million.

The Community Based Abstinence Education program would receive a $28-million increase. Nonprofit groups use these funds to develop sex-education programs that discourage young people from engaging in premarital sex.