A Mixed Bag for Charities

Bush spending plan promotes giving and volunteering but calls for cuts in other programs

The fiscal 2003 budget request that President Bush submitted to Congress this month

includes new incentives for people to volunteer and donate to charities. But many nonprofit leaders are concerned about reductions Mr. Bush proposes in education, housing, and social-service programs that provide grants and contracts to charities.

The budget proposes more than $560-million in additional federal spending to prompt more Americans to volunteer with charities, as well as a number of tax incentives designed to stimulate charitable giving. At the same time, Mr. Bush proposes substantial cuts in other programs: an $80-million reduction in grants for social-service programs in poor neighborhoods, for example, 12 percent less than the program received last year; and $649-million less for job training and employment services, an 11-percent cut.

In a statement accompanying his four-volume budget request, the president said that his goal was to curtail unsuccessful programs and moderate the spending growth in the rest of government to pay for increases in defense, science and technology research, and certain social programs he considers effective, such as helping the poor purchase their own homes and improving performance at schools that serve predominantly low-income families.

Some charity leaders argue that Mr. Bush proposes to cut effective programs, however, and that he has failed to provide critically needed increases for other programs.

“Over all, it’s an outright disaster for the nonprofit community,” said Gary Bass, executive director of OMB Watch, which monitors government spending. “The little crumbs that are thrown to the sector are in the form of volunteerism and through AmeriCorps, and that’s hardly worth the concern about program losses elsewhere.” He says that if charities make their concerns about the cuts known, Congress might restore funds for at least some programs.

Other analysts say the budget is good news for charities. Robert Rector, a senior research fellow at the Heritage Foundation, a conservative think tank, says the president’s new proposals, including one to encourage low-income couples to get and stay married, would bring new vitality to welfare programs.

Mr. Rector says charities need to look at the big picture. “There are close to 70 different major federal programs aiding poor people,” he said. “In any given year, some of those will be cut. But the reality is that, in the aggregate, the system has been growing very rapidly.”

A major question will be how much of Mr. Bush’s budget will survive congressional action, particularly since the president proposes cutting many programs that are popular with Congress, lobbyists for charities say. The House and Senate will spend the next few months debating the president’s budget proposal as they draft their version of a spending plan for fiscal 2003, which begins October 1.

Among the proposals in the president’s budget of interest to charities and foundations:

Health and social services. Mr. Bush has requested $16.7-billion for state grants for the primary welfare program, Temporary Assistance for Needy Families, the same amount as last year. Health and Human Services Secretary Tommy Thompson said that the amount actually represents an increase for states, because they will be able to apply the savings they have gained from reducing welfare caseloads to new programs. Welfare caseloads, which nationwide have fallen steeply the last several years, fell 1 percent overall between March and September of last year, according to the Center for Law and Social Policy. However, welfare caseloads in 33 states went up over that period.

Funds for other programs that serve those in need, such as soup kitchens and food banks, also would remain flat at $150-million. An exception is the food-stamp program, which would increase by $1.5-billion. The increase would make it possible for poor immigrants who have lived legally in the United States for at least five years to become eligible for food stamps.

The president proposes to increase spending on a program to strengthen families by $130-million. Some of that money would go to support new efforts the president would like to start, including $20-million for a project to support “responsible fatherhood” by encouraging low-income or unemployed fathers to avoid welfare and to play a significant role in their children’s lives. Congress failed to approve money for these programs when Mr. Bush proposed them last year; this year he has reduced the size of his requests.

The administration also proposes to spend $100-million on a new incentive to strengthen families, replacing a $400-million program that pays bonuses to states in which births to unmarried women have decreased. The new incentive would allow localities to experiment with efforts to encourage low-income couples to get and stay married.

Mr. Bush plans to cut the budget for the Community Service Block Grants, which give money to 1,100 nonprofit and other organizations. The groups run education, fuel-aid, housing, nutrition, and child-care programs in poor neighborhoods.

The proposed $80-million reduction, a 12-percent cut from last year’s $650-million budget, could force small or rural groups to close, says David Bradley, executive director of the National Community Action Foundation, in Washington. “Clearly, in a recession, with rising unemployment, with working poor hanging on by the skin of their teeth, it’s not smart fiscal policy, let alone humanitarian policy,” he said.

The administration also proposes to shave $300-million, or 18 percent, from a program that helps the poor pay their fuel bills. Mr. Bradley says he plans to urge members of Congress to restore funds for these programs, and is optimistic that they will do so. Congress blocked Mr. Bush’s effort to slash the fuel-assistance program last year, he observes.

Another administration proposal would increase grants for community health centers by $114-million — to $1.46-billion — to pay for 800 new health-care practitioners in 170 new or expanded centers. The centers are nonprofit, neighborhood-based health clinics located in poor areas or areas without enough doctors, that treat people regardless of their incomes or ability to pay.

Housing. The president would increase by $238-million a program that helps low-income families purchase their own homes, and increase to $65-million a “sweat equity” program for nonprofit groups like Habitat for Humanity, which require low-income families to help construct the homes they will eventually own.

Funds for the Community Development Block Grants, which will receive $5-billion this year, would be reduced by $208-million under Mr. Bush’s plan. The funds provide money to poor neighborhoods to build low-cost housing, clean up slums, or encourage economic development. The administration says that lawmakers had earmarked some of the money for inappropriate projects. Sheila Crowley, president of the National Low Income Housing Coalition, says that the budget overall does little to stem the paucity of low-cost housing nationwide. She plans to ask Congress to add funds to help provide such housing.

International aid. President Bush is seeking $8.47-billion, 9 percent more than last year’s budget, for foreign assistance and humanitarian programs administered by the Agency for International Development. He would increase aid to allies such as Jordan while cutting or freezing spending on other programs such as family planning — flat at $369-million — and a program to prevent and treat various infectious diseases, which is cut by $45-million, a 29-percent decrease. Overseas aid groups, which say more money is needed to meet basic needs, charge that the administration is ignoring a new reality — that poverty and instability in countries like Afghanistan can have serious repercussions at home. “Spending decisions appear to be based on a world of the past,” said Mary McClymont, president of InterAction, a coalition of charities that operate overseas. Ms. McClymont argues that support for education and disaster aid is crucial in order to improve conditions in desperately poor countries and prevent terrorists from gaining a foothold there. InterAction has begun a long-term effort to lobby Congress and the administration to increase the amount the government spends overseas and to make it more effective.

Tax breaks for charitable giving. Mr. Bush asked Congress to allow people who do not itemize deductions on their federal income-tax returns to write off a portion of their charitable gifts. In addition, he urged Congress to allow donors over age 59 1/2 to give money to charity directly from their retirement accounts without incurring taxes.

The president also sought to increase the annual limit on charitable deductions taken by corporations, from 10 percent to 15 percent of a company’s taxable income.

In addition, the president asked Congress to lower the federal excise tax on private foundations to 1 percent. Foundations currently must pay an excise tax of up to 2 percent on their investment income, and they say that they would be able to give more if they didn’t have to pay as much in excise tax.

Many nonprofit groups are also concerned about the president’s proposal in the budget to permanently repeal the estate tax. Last year’s tax law gradually reduces the estate tax over 10 years before repealing it for one year in 2010. The administration estimates that extending the repeal of the estate tax and other gift taxes would cost $104-billion over 10 years. Nonprofit groups fear they could lose a lot of money if the tax is repealed permanently, since the wealthy would lose a big incentive to make charitable gifts.

Technology. The administration proposes eliminating two programs that seek to bring information technology to people who are poor, live in rural areas, or are members of minority groups.

The U.S. Department of Commerce’s Technology Opportunities Program has awarded grants for innovative technology projects in economic development, education, health care, and other areas since 1994. This year the program will distribute $12.4-million in grants, down from the $42.8-million appropriated in the last year of the Clinton administration.

Another program, the U.S. Department of Education’s Community Technology Centers program, which makes grants to local organizations that provide access to information technology, received $32.5-million this year.

President Bush’s budget proposal says that the growth of the Internet in all areas of society means that the Technology Opportunities Program is no longer necessary to “prove the usefulness of such technologies.” It describes the elimination of the Community Technology Centers program as part of the administration’s goal of freeing up money for high-priority programs by dropping small programs “that have limited effect.”

“These proposed cuts are penny-wise and pound-foolish,” said Tony Wilhelm, who directs the Communications Policy Program at the Benton Foundation, in Washington. He notes that both programs are matching-grant programs, which require organizations to raise funds from other sources, such as private foundations, local governments, or individuals.

The day after the cuts were proposed, the U.S. Department of Commerce released its annual report on Internet use in the United States. While acknowledging that factors like race, income, and education level still play a role in who has access to technology, the report said that Internet use was growing faster among low-income families, blacks, and Hispanics than among other groups. Mr. Wilhelm calls this year’s analysis of Americans’ access to technology a “stark departure” from earlier reports. “The previous reports have really focused on the fact that there continued to be a divide,” said Mr. Wilhelm. “Now we see that the new interpretation is that all boats are rising, and therefore the government can start to pull out and cut back on these programs.”

Volunteerism. The AmeriCorps and National Senior Service Corps programs, as well as Peace Corps, all would receive substantial increases as part of the president’s plan for a new volunteer structure called the “USA Freedom Corps.”

In addition, the administration’s budget seeks $144-million to establish an all-volunteer “Citizen Corps.” Members of the Corps would support “homeland security” by providing back-up medical and police assistance as well as greater local scrutiny of potential terrorists and terrorist activities, among other duties. The administration is seeking $230-million for these efforts next year. The programs would be run by councils that could include nonprofit officials. Nonprofit programs, such as Neighborhood Watch groups, could receive some of the money.

The table below summarizes key items in the president’s budget that are of interest to nonprofit groups.

The president’s entire plan is available online at http://www.whitehouse.gov/omb/budget/index.html.

Nicole Wallace contributed to this article.