Funding non-profits is good business

Published:  Savannah Morning News, January 8, 2018.

Following up to Kristopher Monroe’s article Savannah Chatham budgets must reflect community’s cultural values, and after the City’s budget has been adopted, I believe it prudent to see the conversation steered away from intrinsic cultural values to government’s role in job development and economic impact regardless of the business model.  There should be no discounting the intrinsic values, but they often fall on deaf ears and in today’s political rhetoric the conversation needs to be re-framed in such a way that matches the thinking of public policymakers, and others, to better communicate that government’s non-profit funding is a worthy investment and just good business.

 The conversation shift should begin with the fact that “non-profits” are not-for-profit. Not-for-profit (NFP) organizations chose to pursue a mission other than capitalism and the pursuit of wealth.  NFPs have always been welcome, valued, and well positioned in the fabric of our society dating back to its founding and is very prevalent today in many facets of our and our family’s lives.  NFPs provide education, health care, social services, faith, and arts and culture, to name but a few.  Most of us benefit directly or indirectly from NFPs on a regular basis as they are a business model dedicated to addressing those needs or wants that government does not directly provide and to where capitalists cannot achieve a reasonable rate of return; yet, society-at-large supports them nevertheless.  NFPs fill a void, a gap between state-provided and capitalism. However, the trifecta of government, capitalism, and NFPs are intertwined, and it would be hard-pressed to separate them. 

The fact is that government makes considerable effort to further job growth and economic development.  If your mission is for-profit, then the government will create incentive packages including floating bonds, payroll tax credits, property tax abatements, income tax deductions, etc.  Also, any business model that has a decent rate of return will attract financing through investors, issuance of bonds or stock, bank loans, and venture capitalists.  If your mission is to make money, all you need is a good idea, and you will have a full spectrum of resources available.  The government will do what it can to support your new venture or capacity building efforts.

Alternatively, what do the not-for-profits have? Every NFP has basically been bootstrapped or born from grassroots beginnings and almost never with outside assistance like that made available to for-profit businesses.  It originates from a need and a passion for making a change.  There are NFP “advantages” of not paying tax on net income, not paying property taxes (though now there are fire fees), sales tax exemption, and, to a lesser degree today with recent tax reform, the charitable deduction.  However, these are only available if you can reach the point of building a sustainable business model dependent upon, in part, unearned or contributed income.  It needs to be said too that contributed income is not a result of begging, like it is often perceived, and is instead the contributions made from the public, corporations, foundations, and government collectively wanting to see the mission fulfilled for the benefit of society, i.e., the greater good. 

The State of Georgia has a plethora of incentive options available if you want to move your small for-profit business to Georgia, but none apply to the NFP.  Also, what financing options are available for an NFP?  Every government-backed small business loan program lists specifically for-profit business.  Other NFP financing options are hard to come by except by private lender and putting up one’s personal collateral. 

It should be stated too, for example, when was the last time you saw the public celebration of an NFP expanding, starting up, or moving to the State of Georgia? 

NFPs should be commended and celebrated for their efforts.  NFPs do more with less, in part because they must. They also bring out the best in members of our society.  Without any incentive to pursue a mission that has no financial benefit to individuals or investors — outside of a job, and that is not always the case — would anyone in their right mind do this?  The reason is that we value NFPs. Profit is not always a prime directive, and it should not be a qualification for the government when evaluating how it wishes to support small businesses.  NFPs are a small business like any for-profit business.  Indeed, the NFP sector is a business sector, and that notion is often forgotten.  The NFP business model’s income statement contains a revenue side and an expense side but, at the end of the day, the net income earned is put back into furthering the mission and not into the pockets of investors.  NFPs are themselves small businesses with comparable jobs and a significant economic impact comparable to any other for-profit business.  Perhaps it is the time that comparable efforts be made to support the NFP sector as made to support the for-profit sector.  Look to lost revenue or the expenses incurred for all small businesses and evaluate them on equal footing.   

At the end of the day, anything that impacts government budgets must be closely evaluated.  The debates today are the expense line item for contract services and the role of the City of Savannah in funding NFPs.  With the new year, the debate should be shifted to how much revenue is not, in fact, being collected through all available revenue streams and the expense of business incentive or financing packages.  The government should communicate the value of investments and lost revenue, through a recorded in-kind transaction perhaps, and let the public decide what it wants to prioritize; either government is involved with supporting all business models or perhaps none.  The funding process through these contract services for the NFPs is equivalent to those business incentives for the for-profit businesses.  Any expense to the city must also be compared to lost revenue.  They impact the budget and the taxpayer the same.  The funding process through contract services provides incentives to NFPs to extend their programming, a tool to leverage additional outside funding, and help to provide accessibility to all in our community.

[The following was edited out of the published version]

An additional response to Mr. Monroe’s article is the conversation extended to include the contract services process being both competitive and accessible.  Worthy organizations that contribute much to our economy did not apply because of the excessive rigor that the application called for, inclusive of final reporting requirements and the data-driven metrics that are not always feasible for small organizations.  One could call this border-line business discrimination as it favors the established and shuns the new start-ups, the established but smaller organizations, and the volunteer-driven NFPs.  There is also the debate about the NFP’s revenue diversification and perceived over-reliance on the government, but then this falls to the NFPs needing to ask itself where the board is and be sure their board is exercising their legal or fiduciary duties of providing good governance and addressing long-term sustainability.  Finally, if one wants to implement the community’s values, then the government should not be directly evaluating individual investment opportunities.  Instead, install commissioners for all NFP investment funds, like that of cultural affairs, and let it make recommendations at the community level then apply a logical and transparent funding model to distribute investment funds. 

We are on the edge of a new year, and it is time for earnest conversations that move from rhetoric to action.  In a year, we must not find ourselves again debating our government’s budget.   We now have the time and can instead truly prioritize where to invest taxpayer resources in a fair, equitable, and transparent manner for the betterment of our society and prosperity in all businesses regardless of mission.