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Published in Economic Development

Nonprofits brace for sweeping changes from federal tax reform

BY Sunday, December 24, 2017 06:14pm

The potential effects of recently-passed federal tax reforms loom large on the minds of Michigan’s philanthropic leaders for 2018.

While the tax reform bill ultimately did not include a repeal of the Johnson Amendment that prevents churches from endorsing political candidates, the nonprofit and philanthropic community must now wrestle with the broad effects of the new law. 

“There are quite a few factors that are still unknown that will impact the funding outlook for the nonprofit sector in Michigan,” said Donna Murray-Brown, president and CEO of the Michigan Nonprofit Association. “Much of it has to do with the outcome of the proposed federal tax reform. For instance, over 40 percent of the state budget for Michigan comes from the federal government. Funding for programs that are either supported by or administered through the nonprofit sector are supported by federal funding that flows through the state.”

The anticipated outcome is that federal funding cuts to entitlement programs will adversely impact funding for programs administered via nonprofits, according to Murray-Brown.

“Federal funding supports a range of things from food and nutrition programs to senior services and everything in between,” she said. “It is my estimation that the need of the communities has not decreased, yet funding is anticipated to decrease. Human service nonprofit agencies may see an uptick in the need for their services.”

This is a pattern that has continued to gain momentum with a continual decrease in funding for programming that used to be covered by the federal government, said Kyle Caldwell, executive director of the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University.

Caldwell said the state of Michigan is becoming ground zero for what some refer to as municipal failures. He said government can’t do what it used to do and the nonprofit community has increasingly been called upon to fill the role of “first responders.” He cites the bankruptcy of the city of Detroit and the funders who stepped up from the philanthropic sector to save iconic symbols of the city such as the Detroit Institute of Art.

“That is a critical role that philanthropy steps into without having a game plan for what comes next,” Caldwell said. “With the Flint water crisis, it wasn’t the state or city that had the capacity to respond to the leaching of lead into the water system. It was really up to the nonprofits and the private funders coming together to deliver bottled water to vulnerable communities.”

The willingness of nonprofits to fill that role begs the question of what this means for charitable organizations in the long term.

“What does it mean to ask nonprofits to play leadership roles without the necessary tools,” Caldwell said. “The tax reforms radically change the way people think about donations to nonprofits.

“It’s not a matter of ‘can we.’ The expectation is there will be nonprofits to stand in that role whether they can afford to or not. The question is: Will they get tools to be effective?”

Caldwell said the bigger step is going to be entitlement reform with the federal budget shifts.

“When we look at Medicare, Medicaid and WIC and (Supplemental Security Income) to pay for this shift, (that’s) going to be where our nonprofits are going to be looked to fill in,” he said.


Questions surrounding the role of government are affecting philanthropy and charitable sectors in a major way, said Rob Collier, president and CEO of the Council of Michigan Foundations

He said when the discussion about this started several years ago, the thought was that it would go away. However, this has not been the case and community and family foundations continue to look at ways to leverage philanthropic capital to help their communities address critical needs, including homelessness and food insecurity.

Collier said the topic of impact investing is “here to stay.”

“While we are expecting funding to be up for 2017, it is expected to be static in 2018 while givers and their advisers figure out the ramifications of the new tax package,” Collier said. “There will be an uptick in funding related to the elections and ballot issues. Education will continue to receive the bulk of grant dollars from foundations.

“As we look at the data, education for the philanthropic community is a huge priority. When we look at what’s going on and the need for talent in our state, donors are saying, ‘Are we doing this the right way?’”


But philanthropic leaders are bracing for a lessening of the federal tax incentive to give to charities. An analysis by the Joint Committee on Taxation found that a reduction in the number of people who can itemize from the present 30 percent to the anticipated 5 percent will also reduce charitable giving to nonprofits.

A study conducted by Indiana State University estimates that about $13 billion will be lost in charitable giving.  

“Here in Michigan, that would be double insult. We lost the (state) charitable incentives for Michigan donors in 2011,” Murray-Brown said. “That coupled with an anticipated loss in charitable giving at the federal level will be hard for nonprofits in Michigan.

A study by the Johnson Center for Philanthropy at GVSU found that people still gave to nonprofits, just at lower amounts than they did with the incentive, according to Murray-Brown.  

“This will be something to watch,” she said. 


Appealing to the next generation of donors and new organizational strategies to capture donor dollars also fall on the radar of philanthropic leaders.

“In our field of philanthropy, the role that Millennials are playing is definitely a big issue,” Collier said. “One of them said to me very candidly that they don’t have any use for government or how it works, ‘just tell me how to get stuff done.’”

Although nonprofits have been moving toward providing more fact-based data to support their work and demonstrating measurable outcomes to donors, Caldwell said this will become increasingly important as they tell their story.

A shift in the way donors think about nonprofits means that a lot of the work being done is going to have to be clear and evidence-based, Caldwell said. 

“With the radical shift that we’re seeing among people who are donors and volunteers and their expectations, it’s very clear that while we’re still looking at that $50 trillion wealth transfer, it will happen in very different way,” he said. “People don’t want to give blindly. They want to be hands-on and involved.”

Murray-Brown said volunteering continues to be a great tool to bring that next generation into the nonprofit world.

“Typically, volunteer opportunities can be very transactional with a project or activity occurring and the results of the project or activity (can be) understood almost immediately,” she said. “Nonprofits will have to continue to hone in on their social media skills in getting the attention of the next generation. It is still the communication of choice and is an exceptional tool for a call to action.” 

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