What Is Charity?
By STEPHANIE STROM
Published: November 14, 2005
ACROSS the country, nonprofit leaders who battle poverty saw hope in Hurricane Katrina, which starkly illustrated how even something as evenhanded as a natural disaster can discriminate against the have-nots.
Tax Claims Grow, but Not to Benefit Poor
Monica Almeida/The New York Times
PLEA FOR HELP While the definition of charity has evolved in the United States, for Donna Stegall, an unemployed medical assistant in Los Angeles, it still means help paying for the necessities.
The New York Times
"Suddenly, everyone was talking about poor people," said Lilliam Barrios-Paoli, a former nun who has devoted herself to the poor as a public official and is now a charity executive. "It seemed to dawn on everyone that we didn't win the war on poverty."
Yet, among the many who had been turning away from Americans most in need of charity was the philanthropic sector itself. Last year, the share of giving going to organizations most directly related to helping the poor hit a record low, accounting for less than 10 percent of the $248 billion donated by Americans and their philanthropic institutions.
Adjusted for inflation, gifts to health groups have almost tripled over the last four decades, and those to educational institutions have risen almost fourfold, while donations to human services groups are up only 28 percent.
Other statistics also suggest that the nonprofit sector has drifted from core notions of charity. Nonprofit hospitals provide no more charity care than taxpaying counterparts do. While university assets soar, tuition continues to outpace inflation. Only a sliver of giving to churches is spent on social services. Last year, of the 14 gifts that exceeded $100 million, only one - a $1.5 billion bequest to the Salvation Army from Joan B. Kroc, the widow of the founder of McDonald's - went to a human services organization, Forbes magazine says.
"In general, philanthropy seems to have stopped talking about poverty and race," said Jan Masaoka, executive director of CompassPoint Nonprofit Services, which tries to strengthen charities. Small groups still get funding, but the sector "in some ways has retreated from taking on poverty in a larger-scale, more direct way."
So what is charity today if it is not aimed primarily at the have-nots? Has its definition been stretched so broadly that it no longer has meaning? If so, are the tax breaks that propel our philanthropy justified? Representative Bill Thomas, Republican of California, the chairman of the powerful House Ways and Means Committee, has raised those questions in a series of hearings examining whether tax exemption is justified for certain types of nonprofits.
The question, in his words, is, "What is the taxpayer getting in return for the tens of billions of dollars per year in tax subsidy" offered to donors through tax write-offs or to nonprofits through their tax exemptions? According to the Treasury Department, the charitable deduction will amount this year to a $40 billion tax subsidy, mostly to upper-income households - overshadowing the roughly $20 billion the human services sector is likely to raise. No official estimates exist for the cost of the tax exemption covering money that nonprofits spend and for the property they own.
The hearings have received little public notice but have terrified nonprofit leaders, more than a Senate Finance Committee threat to tighten regulation of charities.
"When you start to ask what is the fundamental underlying rationale for tax exemption and the charitable deduction for donors, it leads to questions that are far more difficult to answer than questions about greater disclosure and better governance," said John D. Colombo, a tax-law professor at the University of Illinois who testified before Rep. Thomas. "It gets you to questions like, why should an institution with billions in the bank get tax exemption?"
Relieving the plight of the poor is the bedrock of charity, dating as far back as when the Roman Empire became Christian, and donations that had honored the gods were instead aimed at the underprivileged. But the English code that grew into the foundation for laws governing nonprofit organizations, the 1601 Statute of Charitable Uses, better known as the Statute of Elizabeth, defined charity's purposes much more broadly, covering everything from bridge repairs and the education of orphans to the "marriage of poor maids." From this seed grew the current vibrant nonprofit sector, and the murkiness that now equates a university with a multibillion-dollar endowment with a local Boys and Girls Club.
"We simply don't have a coherent rationale for what it is we call charity," Professor Colombo said. "So we have these vastly different sorts of organizations doing vastly different things and calling it charity."
Representative Thomas and others are particularly vexed by nonprofit hospitals, often noting that data from the American Hospital Association calculated that their average spending on uncompensated care was 4.4 percent of their costs in 2002, compared with 4.5 percent for their commercial cousins.
Representative Charles Rangel of New York, the senior Democrat on the Ways and Means Committee, has asked whether a better target may be universities, which sit on tens of billions of dollars in assets while tuition increases are outpacing inflation.
Of course, some portion of contributions made to health, education and religious institutions, which are the recipients of most philanthropy, do benefit the poor. Universities provide tuition assistance to students from low-income families, medical research can alleviate problems like asthma, which is a particular issue for the poor, and churches engage in a variety of activities to help the needy.
Experts say, however, that the money trickling down that far is usually quite limited. "There is a big debate about how much of the giving in those sectors eventually flows to charity, as in day care centers, family counseling, drug abuse counseling and after-school youth programs," said Lester M. Salamon, director of the Center for Civil Society Studies at Johns Hopkins University. "I'm not for a really narrow definition of charity, but at the end of the day, it's distressing that human services attracts such a small slice of overall giving."
Research by Mark Chaves, a sociology professor at the University of Arizona who was principal investigator of the 1998 National Congregations Study, the first comprehensive study of churches and their spending, showed that less than 3 percent of the average congregation's total budget was spent on social services.
The average university spent 4.8 percent of its endowment on its operations last year, according to the 2005 Commonfund Benchmark Study, an annual look at education endowments. But its return on investments increased 14.7 percent. At Harvard University's current rate of growth, its endowment will be larger than the Bill & Melinda Gates Foundation, the world's largest foundation, in three years. And while Harvard increased its spending last year on financial aid for undergraduates to $80 million a year, that figure represents less than .5 percent of its $22 billion endowment, and only about 2 percent of the approximately $4 billion it earned last year on its investments.
"For the past 15 to 20 years, educational institutions have been funded primarily by tuition and fees, not donations," Professor Colombo said. "We're conditioned to think of them as charities, but they aren't."
Not surprisingly, leaders of nonprofit institutions take exception to the criticisms being aired in Congress. In a statement submitted to the Ways and Means Committee, the Alliance for Advancing Nonprofit Hospitals called the figures on charitable care a "cursory" analysis that missed crucial differences with commercial hospitals. Sheldon Steinbach, the general counsel of the American Council on Education, called the focus on endowments "an easy cheap shot." Universities, he said, may be legally prohibited from spending their endowments to reduce the costs of college.
But beyond the question of what large institutions do with their money is another debate: why donors are giving less to charities focused on America's poor.
Many of the biggest foundations fighting poverty have turned their focus overseas. The Gates Foundation, for instance, has given more than $5 billion for health issues abroad. But it also does work at home. It has spent heavily around the country on education, particularly at high schools, and in the Pacific Northwest donated $556 million to food banks, transitional housing for homeless families, shelters for battered women and other human services. Greg Shaw, who oversees the group's giving in that region, sees a link in these different spheres. "The one thing that really cuts across all areas of our giving is inequity," he said.
What's more, the foundation has a category it calls "special projects," $562 million dispensed solely at the discretion of the Gateses themselves. While part of that money has gone to universities, much of it has been given to groups like the Sargent Shriver National Center on Poverty Law and the Society of St. Vincent De Paul.
When it comes to raising money directly, most human services groups have weak fund-raising operations, if any, and their board members typically lack the resources of those who serve as trustees of universities or museums.
Their missions also hamper their fund-raising efforts. "You can build compassion for certain things, but there are things we work with like substance abuse, child abuse and domestic violence that the average donor just can't relate to," Ms. Barrios-Paoli, the former nun, said.
Ms. Barrios-Paoli is the executive director of Safe Space, a charity that operates group homes for foster children, services for abused children and health and mental health services for poor families in New York City. It holds two benefits a year, generating $70,000 to $80,000 each, a fraction of what most private schools in Manhattan raise at a single similar event. It has one fund-raising executive and two other employees who solicit grants from foundations.
Over all, private donations account for roughly 3 percent of Safe Space's $18.5 million budget. The rest comes from contracts it has with the state and local governments.
Its board members are professionals who contribute what they can, but it does not require them to give a minimum amount each year like many of the city's more elite charities do. "They're great, very dedicated and committed, but it's not the board of the Met," Ms. Barrios-Paoli said, referring to the Metropolitan Opera, whose board includes one Forbes 400 member, the wives of two others and the son of another.
Ms. Barrios-Paoli listed the benefits of being a Met board member, from special seats to audiences with Placido Domingo. "All I can offer my board is a tour of a foster home or a community kitchen," she said.
James S. Tisch, president and chief executive of the Loews Corporation, whose family cuts a wide swath in philanthropic circles, agreed. "That's always part of it, putting together a board and creating an aura that it's a group that other people want to be part of," he said. "Museums have done that very well, and hospitals."
Mr. Tisch is a trustee at Mount Sinai Hospital, where his family has given enough money to have its name on a building, but he has also served on the board of FEGS, a cluster of charities offering a range of social services, for more than two decades.
FEGS, like Safe Spaces, is mostly supported by income from government contracts, and Mr. Tisch cited that as the biggest reason giving to human services has shrunk. "Why should a philanthropist pay if the government will?" he asked.
The federal budget for health and human services rose 183 percent, adjusted for inflation, to $459.4 billion in 2002 from $68.3 billion in 1980, according to research by Patrick Rooney, director of research at the Center on Philanthropy at Indiana University.
Nonprofit leaders counter that they have been forced to seek more government support as donations have declined. "It becomes a chicken and egg kind of thing," said Peter B. Goldberg, chief executive of Alliance for Families and Children, which represents more than 300 family service groups nationwide. "I'd argue that my agencies have become increasingly dependent on public sector funding because nongovernmental funding simply hasn't kept pace."
One reason for that failure, Mr. Goldberg says, is the increased demand by donors for proof of some return on their dollars. "This is a tremendous challenge for human services," he said. "We don't have good ways of measuring what we do, yet that's what donors want from us."
The few social service agencies that have found ways of demonstrating the benefits of their services get at least some positive responses. Lifetrack Resources Inc., a Minnesota nonprofit that helps poor families, has increased the portion of its budget underwritten by donations. Terry Anderson, its vice president for development, attributes some of the growth to its increasing reliance on metrics to prove its success.
Using a 42-year study of the effect of preschool programs on children who are developmentally delayed because of abuse or neglect, Lifetrack calculates that every dollar invested in its own preschool program produces a $17 return in services the children will not need in the future.
Similarly, for every dollar spent on employment services, Lifetrack says it saves the public $2.34 that would have been spent on welfare, not to mention the increase in tax revenue generated by the people it helps to find work.
"This kind of metric is becoming part of our brand, and it came as a result of our board asking why we weren't looking at ourselves that way," Ms. Anderson said.
Ms. Anderson was hired by Lifetrack in 1987 to increase support from foundations and corporations, which totals about 6 percent of its $10 million budget. Recently she has turned her attention to individual donors, whose contributions have doubled over the last couple of years, but only to $70,000.
"If there's one thing that's true, it's that people give to people because they have a personal connection to the place they're giving to, and people who have personal connections to human service organizations are not usually people with money, " Ms. Anderson said.
That assertion is supported by demographic data showing that older donors, particularly women, have been the biggest supporters of groups helping the poor, said Robert F. Sharpe, a fund-raising consultant. Those donors are dying out, he said, and the emerging generation of baby boomer donors is less likely to support social service organizations. "People who grew up in comfortable, clean, prosperous suburbs have just never had as much familiarity with how many others live," Mr. Sharpe said.
"Many commentators talked about how the Katrina disaster pulled back the curtain and exposed the extent of poverty that exists in many American communities," he said. "Perhaps one effect of that may be renewed interest among younger Americans in organizations that are working to meet the needs of the poor and otherwise disadvantaged among us."
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What Is Charity?
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