Analysis of Federal Budget Paints Grim Picture for Nonprofit Groups

By Elizabeth Schwinn

Federal grants to charities could decline by more than 11 percent over the next five years, and many other government-spending reductions are likely to harm nonprofit groups at the same time, says a new report.

The report by the Nonprofit Sector Research Fund of the Aspen Institute, a Washington think tank, found that both federal grants that go directly to charities and federal spending on programs that indirectly benefit nonprofit groups, such as aid programs for the poor that reduce demand on charities, could decline significantly by the end of the decade.

The report is based on the $2.8-trillion budget proposal for the 2007 fiscal year that President Bush submitted to Congress in February, and other administration estimates of federal spending through the end of 2011.

Federal grants to charities, which will total an estimated $42.2-billion this year, would decline by $14.3-billion over the following five years, the report found. Those figures exclude spending on Medicare, the federal health-insurance program for the elderly, and Medicaid, the federal health-insurance program for the poor.

Meanwhile, the federal government would pare spending in areas where nonprofit groups are active, such as education, welfare, the arts, and environmental preservation. Such spending now totals $427.9-billion and would fall by $78.6-billion through 2011.

Such cuts would drive needy individuals to seek more charitable assistance, according to the research fund. Institutions that currently receive substantial federal support and in many cases were created by governments at all levels — including public schools, government health clinics, parks, and public museums — would also seek more help from private sources.

Mr. Bush’s plan “would put new demands on the nation’s private, nonprofit organizations at the same time it would reduce the federal support going to these organizations to provide services,” the report’s authors — Alan J. Abramson, Lester M. Salamon, and John Russell — wrote.

Another budget analyst disputed that conclusion, saying the estimates the report is based on are meaningless.

“The federal government budgets only one year at a time, and the numbers beyond 2007 are just filler meant to make long-term budget deficits look small. They do not in any way reflect the budgets that will actually be proposed by the president or enacted by Congress,” said Brian M. Riedl, a senior budget analyst at the Heritage Foundation, a conservative Washington think tank.

Final decisions about the budget will be made by Congress, which often disagrees with the president on which programs to save and which to cut. Lawmakers are working on spending legislation that differs in many respects from Mr. Bush’s proposals for the 2007 fiscal year, which begins October 1.

The research fund’s budget analysis has good news for some charities. From 2007 to 2011, federal spending on certain health and international-aid programs would grow, based on Mr. Bush’s plan and other administration estimates, according to the report. Spending on programs such as Supplemental Security Income and the health-care tax credit also would increase.

The reductions in direct charitable spending would hit community-development organizations and arts groups the hardest: Their federal grants would decrease by more than a quarter over five years, the report said. Education and research grants to charities would fall by 11 percent, and international-aid grants to nonprofit groups would decline 10 percent, the report found.

Government grants for health charities would rise by 15 percent, while social-service grants would increase 3 percent, according to the report.

The budget proposals overall mark a new downward trend in federal support for charity programs after a period of increases. Spending for nonprofit programs grew from 2000 to 2005, despite cuts in some areas, the report said.

“The president’s budget portends a return to an era of fiscal constraint like the 1980s and 1990s for many of the nation’s nonprofit organizations,” the authors of the report said.

Copies of the report, “The Nonprofit Sector and the Federal Budget,” can be downloaded from the Nonprofit Sector Research Fund’s Web site at http://www.nonprofitresearch.org.