Nonprofits say new taxes may be needed to solve budget crunch

By PAUL SINGER, Associated Press Writer

CLEVELAND (AP) - Leaders of nonprofit groups are advocating a repeal of state and federal tax cuts to stave off budget crises that they say are threatening social service nationwide.

Charities are facing budget crises because of the weak economy and state and federal tax cuts that have gutted much of state funding for social services, according to nonprofit group leaders gathered in the city for a national conference.

The long-term solution is to repeal tax cuts or create new revenue sources for social services, several nonprofit group leaders said Sunday.

"Just like the airline industry got a bailout from Congress, we need a bailout for nonprofits," said Audrey Alvarado, executive director of the National Council of Nonprofit Associations.

Leaders of philanthropies and charities are meeting through Tuesday for the annual conference of Independent Sector, a national coalition of more than 700 foundations, corporations and charitable organizations.

According to Alvarado and others, tax cuts passed by congress and state legislatures during strong economic times have created huge shortfalls in state budgets across the country. States are cutting funding to social service agencies, hoping that charities will pick up the slack.

But private donors are cutting back on charitable giving because of the weak economy and the flagging stock market.

"During the years of surpluses, we spent money like a bunch drunken sailors," giving huge tax cuts to businesses and individuals, said Lisa Hamler-Podolski, executive director of the Ohio Association of Second Harvest Foodbanks. "There is a price to be paid for that."

The price is that nonprofits have no way to pay for essential services, she said.

Hamler-Podolski said Ohio has cut $270 million to human service agencies since 2000 and is facing a shortfall for the 2003-2004 budget.

Massachusetts has a similar problem, said Michael Weekes, executive director of the state Council of Human Service Providers.

With budget cuts looming, legislators in July put a freeze on the gradual reduction of tax rates that voters approved in 2000. Weekes said social services organizations in the state are rallying to boost tax rates back to their original levels.

"What we've said is we made a big mistake in cutting taxes in the first place," without identifying offsetting revenue sources, Weekes said.

In Michigan, tax cuts have created a permanent revenue problem for the state that will not be overcome by an improving economy, said Sharon Parks with the Michigan League for Human Services.

A state coalition of social service groups is advocating a suspension of tax cuts passed in 1999.

Gary Yates, president of the California Wellness Foundation -- which funds health and social service charities in the state -- said that with state and federal budgets shrinking, charities increasingly are looking for help from foundations and other private donors.

"It's going to be much worse in 2003," he said.

George Espy, director of the northeast Ohio office of the Ohio Grantmakers Forum agreed. "Grant seekers will see a tremendous reduction in what is available next year," he said.

But raising taxes to fund social services is not the answer, said Jonathan Collegio, spokesman for Americans for Tax Reform, a Washington-based anti-tax coalition.

State budget shortfalls "have much more to do with irresponsible state spending then they do with tax cuts," Collegio said.

During the 1990s, a lot of state legislatures increased spending well above the inflation rate, which led to deficits when the economy slowed, he said.

"If (charitable groups) want to raise taxes, they'll only be taking money out of the pockets of the people who give them donations," Collegio said.

(Copyright 2002 by The Associated Press. All Rights Reserved.)