Some South Jersey nonprofits fear Washington will go over the so-called “fiscal cliff” next year — and take them along for the ride.
“If it happens, it would be a disaster because it would impact all the grants and contracts that we currently operate,” said Joseph Gaynor, executive director of Atlantic City’s Atlantic Human Resources, Inc.
“It’s kind of a precarious position for all of us to be in,” said Maj. Tom Pierce, who operates the Salvation Army’s Atlantic City office with his wife, Maj. Joan Pierce. The charity operates a lunch program, which he said is one of countless programs that could face cutbacks or reductions should charities have to tighten their belts. “The need just continues to grow,” he said.
The “fiscal cliff’ describes the impact of tax increases and budget cuts that would automatically take effect Jan. 1, should the White House and Congress fail to come to a long-term agreement on taxes and spending. This scenario and possible solutions to avoid the cliff pose a significant threat to nonprofits.
Charities rely on billion of dollars in donations to operate. In a survey on philanthropy, The Giving Institute estimated that $298.4 billion was given to American charities in 2011, with almost 80 percent coming from individuals.
This is partially fueled by the fact that many donors can deduct part of their gifts from their federal income taxes. But this could change, as lawmakers consider reducing the amount that can be written off for charitable donations, mortgage interest and state and local income taxes.
“Our biggest concern is whether or not our elected leaders think the charitable deduction is an easy mark to go after,” said John G. Emge, the executive director of Atlantic and Cape May counties for the United Way of Greater Philadelphia and Southern New Jersey. “We are a nonprofit that is sustained on the good graces and donation from the public.”
Contributions and fundraising accounted for $2.2 million for the United Way of Atlantic County in 2011, according to tax records, almost 94 percent of the charity’s revenue.
New Jersey residents gave and wrote off more than $5 billion to charity in 2010, according to federal tax data. But they also deducted $15.7 billion in mortgage interest and $13.4 billion in state and local income taxes. The data show the average state resident had itemized deductions worth about $3,119. Mortgage interest was the largest portion; charitable contributions totaled $324 apiece.
Wealthy residents were also the most generous. Those making between $500,000 and $1 million had almost $1,200 in itemized contributions, while the state’s millionaires gave away $6,580 on average.
However, President Barack Obama has talked of reducing the charitable deduction for couples earning more than $250,000, from 35 percent to 28 percent. This would reduce the value of a $1,000 donation to a soup kitchen from $350 to $280, for instance.
Obama has also opposed the flat $25,000 cap on overall deductions proposed by former Republican presidential candidate Mitt Romney, saying it would take $10 billion from nonprofits. The Urban Institute has estimated the charitable donation deduction annually costs the federal government about $50 billion in taxes it otherwise would receive.
Charities, however, fear the changes would come out of their pocket.
Reducing the charitable deduction limits, said Sheila McLaughlin, the executive director for the Literacy Volunteers Association Cape Atlantic, “would be almost fatal because people support us because of what we do first and foremost, but they also support various charities because of the tax deduction they receive.”
The charity helps area residents with their English. It received $93,252 through fundraising and donations in 2011, according to its most recent tax return, or more than half of its revenue.
Linda Czipo, the executive director of the New Jersey-focused Center for Non-Profits in North Brunswick, Middlesex County, said she believed that proposed deduction limits would hit New Jersey charities harder than elsewhere because the state is wealthier, with higher property values, than average. Charities particularly would suffer under a cap, she said, because she believed taxpayers would prioritize other deductions, such as income tax or mortgage interest before donating.
The other problem posed by the fiscal cliff is the threatened cuts to government programs, which funnel billions of dollars through a broad array of services and grants. Locally, these grants do everything from helping illiterate adults learn to read to providing food and shelter for the indigent.
Should there be no agreement by Jan. 1, then $1.2 trillion in automatic budget cuts over nine years would begin to take hold, lopping $109 billion out of 2013 spending, according to White House figures. Local charities worry about the effect on their bottom lines.
Bob Zlotnick, the executive director of Pleasantville’s Atlantic Prevention Resources, said the group receives funding to treat addition and substance abuse from a variety of federal sources. The group reported $590,358 in government grants in its 2011 tax filing, the most recent. Government grants accounted for more than 60 percent of its revenue, but Zlotnick was resigned to losing some.
“My hope is they won’t cut funds for indigent treatment, funds to provide help for addicts who want to recover, but they have to cut something,” Zlotnick said. “They can’t just raise taxes and not cut at some point.”
Similarly, Joseph Gaynor, with Atlantic Human Resources, said the cutbacks would be “a disaster.”
The nonprofit reported more than $12.8 million in government grants in 2011. These accounted for almost 99 percent of its revenue.
The charity operates programs for early childhood, housing counseling and food and heating assistance, among other anti-poverty programs.
“It is just a whole lot of services for people who are dependent on them,” Gaynor said.
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