As White House and Congress Deal With the Budget, Charities Brace for Cuts

As President Bush was elected to a second term last week, and as Republicans solidified their control

over Congress, some nonprofit leaders expressed concern that charities in the next four years could face continued reductions in government funds, increased oversight, and dwindling chances of getting legislation passed to spur charitable giving.

President Bush’s second term will be shaped in large part by the nearly $500-billion budget deficit, which could stand in the way of support for charity programs, several nonprofit experts agreed. The budget deficit could persuade lawmakers or the president to reduce grants to nonprofit groups or make other changes that could affect government subsidies to charities, said Diana Aviv, president of Independent Sector, a national coalition of nonprofit organizations, in Washington.

“The effect of the budget deficit does not bode well for the sector,” Ms. Aviv said. On average, she said, nonprofit groups get more than one-third of their money from local, state, and federal governments — an amount that has declined in recent years and could be further reduced because of the budget deficit.

“The degree to which Congress and this administration decide to limit spending in areas that affect the nonprofit sector is going to be very significant,” Ms. Aviv added.

Tax Legislation

As a result of the budget deficit the Bush administration faces, nonprofit groups will experience a greater strain on their services and continued reduction in government support, said Audrey R. Alvarado, executive director of the National Council of Nonprofit Associations, in Washington.

“Groups are going to have to start raising more money on their own and charging fees for their services,” she said.

The budget deficit also poses a significant hurdle for charities’ efforts to revive legislation designed to encourage charitable giving, said Jerry O. Allen, a Columbus, Ohio, lawyer who has many nonprofit clients.

“Hopefully we will see movement on legislation to make charitable giving more available for taxpayers who do not itemize on their tax returns,” Mr. Allen said. “But there is a tax cost to doing that, and I think with the budget deficit it’s going to be difficult to find a way to pay for that type of legislation.”

In the Senate’s version of charity legislation that stalled in Congress this year — the fourth consecutive year that a major bill with provisions for nonprofit organizations failed to pass — tax breaks for donors would have cost the federal government $11-billion a year. Unless lawmakers introduce a new bill next year that includes ways to offset provisions that cost money, some tax advisers said, it is unlikely that any charity legislation will pass.

Some academic and nonprofit officials, however, thought that charity legislation might find a renewed chance in the next Congress, in part because Sen. Tom Daschle, Democrat of South Dakota and the Senate minority leader, lost his seat in a closely contested race. Many Republicans, including Sen. Rick Santorum, of Pennsylvania, complained that Mr. Daschle, in his role as minority leader this year, helped prevent the Charity Aid, Recovery, and Empowerment (Care) Act, the Senate’s version of charity legislation, from reaching a conference between the Senate and House of Representatives.

Due to changes in the Senate, including Senator Daschle’s departure, “it is significantly more likely the Care Act will pass, or some version of it,” said Robert W. Tuttle, a professor at George Washington University Law School. However, he said it would still not be easy to get such legislation passed because of the budget deficit. “Tax expenditures will come under close scrutiny.”

Review of Nonprofit Groups

Many people in the nonprofit world also expect abuses at charities and foundations to come in for increased attention next year.

Last month, the Senate Finance Committee, which has held two inquiries this year into the practices of nonprofit groups, asked Independent Sector to assemble a national panel of nonprofit experts to recommend legislative actions to help stamp out abuses at nonprofit organizations. Independent Sector expects to provide an initial report to the Finance Committee by February and a final report in the spring — and plans to ask groups to discuss ideas for legislative action at its annual conference this week.

“The push in the next couple of years will not be in tax benefits to charities — it’s going to be in oversight,” said J.J. MacNab, an independent financial planner in Bethesda, Md. “And while charities may not see oversight as a benefit, in the long run it will be.”

Ian Wilhelm contributed to this article.