What Sequestration Means for Nonprofits

Guest post by Denise Howell, VolunteerMatch CFO

Sequestration will impact nonprofitsJust before Thanksgiving, the bi-partisan Congressional “Super Committee,” failed to come to an agreement on deficit reduction. Their charge, set forth with the passage of the Budget Control Act, was to agree upon a solution to reduce the deficit by $1.2 trillion over the next ten years.

This failure comes as no surprise to those of us who see the partisan fighting as the worst it has ever been. Some feel that it has become so bad that the party not in power prefers to see failure in solving some of the country’s most serious problems – including unemployment and healthcare – so that it will help them gain control in the next election.

Personally, I would find it difficult to get up in the morning if I bought into that kind of pessimism. Still, the stalemate, finger-pointing and bickering in the midst of serious crises for so many is frustrating, even heartbreaking.

So what now? The rules associated with the formation of the Super Committee were clear: If the Super Committee fails, sequestration takes effect in January, 2013. But what does sequestration mean to us and why should we care?

The Threat of Sequestration

Sequestration in this instance means across the board cuts in all government agencies including defense and Medicare spending. The rules were set up in this way to force Congress to act. It didn’t work, and many still don’t take it seriously.

Since sequestration takes effect in 2013, many people think it will be overturned in the next election. We can’t count on that, though, especially when you consider that budgets are planned far in advance and that it takes time to enact or reverse legislation.

Can sequestration affect those of us in the nonprofit sector? Absolutely, and the results could mean draconian cuts to the programs that keep America’s promise to the poor and the elderly.

Many of us do work for citizens on behalf of the government – we do it more efficiently and effectively than a government agency, but the government still provides some of the necessary funding. Any of us who rely upon this funding could lose the support we need to do our most critical work.

Additionally, the loss of funding for key government programs would put additional burden on the nonprofit sector to step in and serve the needs of the people. At a time when more people than ever need our help, we’d have fewer resources than ever.

Charitable Deductions in Danger

In addition to the potentially devastating effect of sequestration, legislation is in the works to reverse charitable deductions that result in millions of dollars in support to the nonprofit sector and the people we serve. One such measure is the IRA charitable rollover.

Taxpayers have contributed millions of dollars to charitable organizations as a result of the limited IRA charitable rollover enacted as part of the Pension Protection Act of 2006. This incentive allows taxpayers age 70 1/2 or older to make tax-free distributions to charitable organizations from their traditional IRA accounts. The IRA rollover is among many other temporary tax provisions set to expire on December 31.

To think that there is no connection between tax incentives and charitable giving is just stupid. I will never cease to be amazed at the generosity of people supporting the most vulnerable in our society. People give because their hearts and minds are open, and that will never change. But tax incentives often make this giving possible.

What You Can Do

I learned early in my nonprofit finance career that getting out of my office and spending time with the program staff and clients was critically important for me to understand the financial aspects of the work. I needed to see the work and immerse myself in it to even hope to be effective at the financial planning end.

This holds true for members of Congress, too. The impact of our sector, our place in the US economy as the third largest employment sector, and the critical importance of our work demand their attention.

Get in touch with your Representatives in Congress and tell them what is important to you and why. Urge your volunteers, supporters and other community members to do so, as well.

I worked in the United States Senate as a college intern, and even in that brief duration I learned that volumes of letters and calls do matter. Tell them your story: who you serve, what your impact has been, and what happens to your community if funding comes to a halt.