Debt ceiling deal has nonprofits wondering what’s next

by Katy Snyder, JVA Consulting

When the deal to raise the debt ceiling was signed into law August 2, many were relieved that the U.S. would not have to default on its debts, and nonprofits were relieved that for the time being, at least, the charitable deduction limit, was not touched. The deal, however, has brought with it a new level of anxiety for already cash- and resource-strapped nonprofits that are now stuck with the uncertainty that comes along with the bill and the mandatory budget cuts to “discretionary” spending it will impose. As a recent Chronicle of Philanthropy article states, the bill “cuts more than $2-trillion over 10 years but does not spell out exactly where those savings should come from,” making it highly likely that social service agencies will feel the pain. Further more, “nonprofits will have to watch for months, if not years, to figure out if they or the people they serve will be victims of the budget scalpel.” The Chronicle suggests that cuts could come from nearly anywhere: social programs, tax increases and Medicaid are all possibilities.

Adding to the uncertainty is the so called “super committee” that was created as part of this deal, which is tasked with suggesting an additional $1.2 trillion dollars in cuts by Thanksgiving—or else. If the committee does not do this (and the cuts are passed by Congress before Christmas), mandatory, across-the-board cuts go into effect starting January of 2013. Many believe this is a highly likely scenario given the fact that the 12-member super committee is bipartisan, and likely to disagree on what to cut.

It’s not all bad
Recent Nonprofit Quarterly and Stateline articles, however, offer some consolation.

Rob Cohen of the Nonprofit Quarterly does a good job of summing up the points made in a recent Stateline article that show the cuts might not have as direct or immediate effect on nonprofits as many fear, and are reprinted below:
•    The immediate spending cuts in the budget deal are to “discretionary” programs. Not only are mandatory programs such as Medicare and Social Security unaffected, so is Medicaid, which states really care about because it has a direct impact on their budgets.
•    The $917 billion cut in discretionary spending over 10 years is not quite as bad as it appears, because that $917 billion number is adjusted for inflation. In dollar terms, discretionary funding would actually rise over those 10 years, though not fast enough to keep up with expected inflation.
•    For fiscal year 2012, the deal reduces federal non-security discretionary spending by only $2 billion. According to the National Council of State Legislatures, this will give states another 12 months of close-to-level funding.
•    The congressional “Super Committee” is supposed to cut another $1.2 trillion in spending over 10 years. This could come in part from Medicaid reductions, but experts are reasonably confident that the committee will be unable to bridge the gap between the two parties and end up doing nothing, or at least nothing that does much damage to Medicaid.
•    If the committee stalls as expected, $1.2 trillion in automatic cuts are “triggered,” beginning in 2013. But most mandatory programs such as Medicaid, Children’s Health Insurance Program, TANF, and food stamps are exempt.
In addition, even if mandatory cuts are triggered, half of all cuts made will be required to come from defense spending, and social security and programs that target low-income individuals will remain safe, according to the Chronicle. Cohen does point out, however, that while Medicare might be safe, other social program such as Head Start, childcare and education could take deep cuts.

While there are still a lot of balls in the air, you can prep yourself for the fallout:

How to take action
Approach your lawmakers now, and particularly if you think programs through which you receive funding might be up for cuts. As the Chronicle points out, because the super committee must present its spending cuts plan before Thanksgiving, the next few months will be crucial in determining what is cut and what is not. Contact Senator Mark Udall at 877.7.MUDALL, Senator Michael Bennet at 303.455.7600 or click here for a list of Colorado’s Congress members and their contact info, and let them know why your programs are needed.

Review your budget. What percentage of your funding comes from the government? At JVA Consulting, we warn clients about the dangers of the “cliff effect,” particularly with large government grants. The cliff effect can happen when your organization gets a lot of money from a large grant. When the grant comes to an end, you are suddenly out of money…you’ve gone off the cliff. Not sure how to fix this problem? Come to one of our upcoming trainings and learn how to build a balanced budget and diversify your revenue (Building Budgets for Nonprofits, September 1, or Fund Development Plan in a Day, September 13).

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