Nonprofit Groups Face Stiff Challenges With New Federal Budget Plan

The 2012 budget plan unveiled Monday by President Obama brought home the notion that the nonprofit world’s relationship with the federal government is facing profound changes.

Mr. Obama, responding to a political climate that demands spending cuts, proposed a series of reductions and scaled-back proposals in areas including energy assistance for low-income people, block grants for social services and community development, national service, and the arts and humanities.

The news wasn’t all bad. The president proposed adding money, for example, to programs to help homeless people and provide rental assistance to low-income families.

But because he vowed to freeze much of domestic spending for five years to help rein in the national debt, Mr. Obama had to find a dollar to cut for every new dollar he wanted to spend.

That meant, as he put it, cutting “things that I care deeply about.”

And many of those things are tied to nonprofits.

Mr. Obama presented his $3.7-trillion budget plan just days after the Republican-controlled House Appropriations Committee introduced legislation to slash $100-billion from his proposed budget for 2011. Congress has still not adopted a budget for this fiscal year, and the Republican proposals will heat up the battle over spending priorities. Those proposed cuts are so extreme—they would completely wipe out AmeriCorps, the national-service program, for example, and end federal spending on public broadcasting—that the president’s proposals looked moderate by comparison.

The problem, however, is that given the Republicans’ appetite for spending cuts, Mr. Obama’s proposals “will just be the beginning,” says Craig Jennings, director of federal fiscal policy for OMB Watch, a government watchdog group in Washington. “For those hoping Obama would lead the way in enhancing or extending programs for those hardest hit by the Great Recession … there’s a lot to be concerned about,” he wrote on the group’s blog.

Robert Greenstein, a leading liberal budget expert, was more generous. “Given current fiscal and political circumstances, the budget strikes a tough but generally sound overall balance,” he said in a statement. He said the plan brings fiscal restraint while avoiding the large immediate cuts that House Republicans want, which would damage the economy.

However, Mr. Greenstein, executive director of the Center on Budget and Policy Priorities, criticized the proposal to cut the Low Income Home Energy Assistance Program in half, to $2.57-billion. Mr. Obama wants to trim spending on the program, which helps people pay their heating and cooling bills, because energy prices have fallen. However, Mr. Greenstein said, those prices are expected to rise again next winter. “While these prices will still be lower than at the peak of the price spike that occurred after the winter of 2008,” he added, ”the number of low-income Americans is much higher now,”

In some cases, the president did not propose actual cuts but had to scale back his original vision. For example, it’s now clear that AmeriCorps and other national-service plans will not be able to grow at the pace that was envisaged in the Edward M. Kennedy Serve America Act, a 2009 law that the president strongly backed. Last year, Mr. Obama proposed upping the budget for the Corporation for National and Community Service to $1.4-billion, enough to allow AmeriCorps to expand from 85,000 to 105,000 members. Because of the impasse over the 2011 budget, that never happened. This year, he proposed spending $1.26-billion, enough for only 90,000 members.

Mr. Obama also trimmed his request for money to expand the Promise Neighborhoods program, which provides grants to help nonprofits set up antipoverty projects modeled on the Harlem Children’s Zone. Last year, he proposed $210-million, this year $150-million.

But in an atmosphere in which the threat of deep spending cuts looms, getting any increase can be seen as a victory. “We feel good about that,” Patrick Corvington, chief executive of the national-service agency, said about the president’s budget for his agency. “We think it continues to demonstrate presidential support for national service, support for the corporation.”