Here’s what we heard:

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Editorial by Lynn Eakin, Metcalf Foundation Fellow, Ontario Nonprofit Network written for the Canadian Donor’s Guide to Fundraising in Canada 2010

Notwithstanding the fact that the Canadian stock market has rebounded, the crisis still exists for Canada’s charities. The economic recover is largely “jobless” and, even when jobs are created, they are not picking up all those displaced, possibly permanently, from the manufacturing sector. Families and communities across the country are finding times exceedingly hard and turning to local charities for help in increasing numbers.

These charities know government’s capacity to help is limited. They knew their governments could not help them before the economic crisis hit and now those same governments are saddled with large and growing debt, further complicating how they manage their declining share of the GDP (from 21.5% in 1992 to 17.1% in 2007). Over the years, tax reductions have seriously weakened the capacity of government to meet its ongoing obligations and reduced its ability to respond to communities in trouble. Government is not coming to the rescue of charities and the communities they serve any time soon.

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http://www.charityvillage.com/cv/archive/alead/alead10/alead1003.asp

On April 12 and 13th ONN is holding its annual gathering of the sector. Having consulted widely we are now ready to move to action (proactive action for us, not just reactive action to others) but…. what actions, when and by who in the sector? That is the topic we will be discussing in April and we need you there. Please come. The sector needs all the leadership it can harness right now. We don’t have all the time in the world to get it right.

For the program and registration go to the website:

www.ontariononprofitnetwork.ca

See you there.

Lynn Eakin

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A companion piece identifying some of the policy implications of the regulatory maze is a companion document to the main report

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Today after the meltdown of the market economy, paying closer attention to the public benefit economy seems like a good idea. The public benefit economy operates in our communities on principles that are fundamentally different from those of the market economy. In the public benefit economy success is measured not by how much wealth is amassed but by how much our common wealth is shared, preserved for future generations, or given away.

A key rebalancing player is Government. The capacity and function of government over the last twenty years, similar to the nonprofit sector, has also suffered from our society’s preoccupation with the market economy. Government is an important component of the public benefit economy. With the economic collapse, governments around the world have become more active on behalf of the public good and we are seeing renewed energy and purpose from government in the public domain.

As individuals, we all participate in both economies as we go about our daily lives. The two economies are inextricably intertwined and both are needed components of strong communities; but the importance and contribution of the public benefit economy to our well-being has been neglected for too many years. In recent times the market economy has commanded all of our attention. Now, with the world wide economic difficulties it is time to pay more attention to the quiet, behind the scenes, “other” economy.

When times get tough, individuals, communities and nation states rely more heavily on the public benefit economy. Helping out your neighbour, coaching the local soccer team, and social agencies helping people in distress are the kinds of activities we know and expect from this economy. Less well understood is its contribution to creativity and innovation. Public benefit organizations are structured so as to retain their assets (creative and material) in the public domain now and for future generations. Arts organizations, social enterprises, community and religious groups, cooperatives and other charitable or nonprofit organizations nurture, and nourish new ways of doing things, new ideas, new solutions to the challenges we face.

Government and public benefit organizations need to work together to enable, value and grow the contribution of the public benefit economy. If we can revalue the public benefit economy - our capacity to give and share with each other, we can approach our challenges with new perspective and new opportunities.

We must seize this opportunity if we are to build the caring communities we all want to live in. Government, the Nonprofit Sector and Business all have important contributions to make our collective well-being but no single component has all the answers. Government and the nonprofit sector are not commercial businesses, we do not respond to the laws of the market nor should we. We work for the public good. It is time there was more recognition of the contributions of the public benefit economy.

What can you do to advance our collective understanding of the public benefit economy? What should others be doing? Share your ideas. I want to hear from you. Please contact me.

I was at the consultation hosted earlier this year by Imagine Canada when they were considering the federal government stimulus initiative. At the consultations there was a great deal of discussion about the effectiveness (or not) of increasing tax incentives for charitable giving. Canada already has one of the most generous tax relief schedules for charitable donations in the world. There is evidence that increasing tax relief may slightly increase the amount given especially on larger donations where tax planning plays a role. However, we know for the most part, people give for other reasons and then take the tax advantage rather than the other way around.

In addition, the changing pattern of charitable giving also needs to be considered. Fewer donors are giving larger donations. These large donations are not being spread evenly across the sector. Increasingly the quango sector - hospitals and universities are taking larger market share. So increasing tax subsidization of charitable giving may not result in increased democratization of charitable giving and may unduly favour large charities better able to court the large donors. The policy implications of increased tax relief for charitable donations need to be better understood.

As government revenues shrink, government looks for areas in which they can reduce spending. One of the few discretionary areas is spending in the nonprofit sector.  Reductions in government revenues have traditionally resulted in significant reductions in government spending across the sector. We would not want increases in charitable giving to be offset by a corresponding reduction in government expenditures to the sector especially if those that receive the charitable donations are not the same as those receiving reductions in government grants. Moreover since the tax credit incentive is suggested for “all” giving not just “new” giving the reductions in government revenue may exceed the increase in charitable giving. The AFP proposal for the Ontario government is not time limited, and applies to existing donors and donations as well as new donations.

Ontario is not Alberta. In Alberta, when times were good the provincial government brought in increased provincial tax credits for donations. However, in Alberta they fund many fewer services directly from government and prefer a model of encouraging philanthropy from private individuals subsidized with tax incentives. Ontario and the rest Canada does not have the same approach and government funds more services directly.

Underlying a decision regarding provincial tax credits for charitable donations is the policy question- What is the role of charitable donations in our nonprofit sector; what is the role of government and how are the two related? What is our objective for charitable donations in Ontario? Do we want to encourage the broad participation of many for relatively small donations or do we want to encourage big donors to make bigger donations? What does this mean for government policy, and the government’s ability to ensure needed services for citizens? Philanthropy was originally about private individuals helping their communities and fellow citizens. The flexibility and freedom of charitable gifts has been very valuable in our communities - funding innovation and filling gaps in government funding. But if 50% of a charitable donation is essentially a redirection of tax dollars when will government want a say in how charitable donations are spent? Could we be risking the flexible discretion of the charitable donation by seeking too great a tax credit for giving? Where is the tipping point?

The AFP proposal is very helpful for it demonstrates the need of the sector and government to revisit and review the role of charitable donations in our communities. We may be able to design better tax incentives for charitable giving but we need to do our homework first so we know where we are going.

In my paper, I suggest that the nonprofit sector is part of what I am calling a public benefit economy that operates in our communities on principles that are fundamentally different from those of commerce. I also make the case that we need to pay much more attention to this economy because it is central to our ability to tackle the challenges facing our planet.

It took me some time before I dared to suggest that something that does not operate on private enterprise principles can be a legitimate economy in its own right. The private commercial business model has been so dominant in our culture that I tended to think of the word “economy” only in those terms.

I now understand better some of the organizational conflict we currently see between for-profit enterprise and nonprofit organizations. There are certain fields – hospitals, prisons, schools, daycares, nursing homes, and other human services – in which we have had longstanding debates over who does the better job. The debate festers unresolved because we as a society have muddy thinking. We have not clearly recognized the fundamental differences between “commerce for profit” and “public benefit for the public good.” Too often we act as if they were interchangeable. Increasingly, I do not believe that this is so.

I now believe that we need to formulate a more congruent coexistence and better relationships between the two economies. But to accomplish this, we need a much better understanding of their operations, particularly those of the public benefit economy, which has received so much less study and attention.

If the sector continues to let itself be evaluated and judged as a private business venture, it is at risk of losing what makes it most precious. We desperately need the passion, commitment, collaboration, generosity, and determined perseverance of the public benefit economy to face the challenges ahead. We need to take a fresh look at how we can best support, value, and grow the contribution that the public benefit economy makes to global well being.

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The Ontario Nonprofit Network (ONN), expert working group has prepared three responses to the three consultation papers on the Corporations Act issued by the Government of Ontario. All three can now be found on the brand new ONN website.

Please check it out the new ONN site, sign up for their e-bulletins, and down load the ONN response documents. You will want to keep track of what the sector is up to and the ONN site is the place to do it.

If you are thinking … why bother responding to something as complex and boring as the modernization of the Corporations Act? Then Read this:

• We want legislation that meets our needs for a change. The ONN’s Expert Working Group is of the strong opinion that new, separate legislation is required to recognize and address the unique qualities, functions and purposes of Ontario’s public benefit sector. The legislation should be titled, “Public Benefit Corporations Act.” Public benefit corporations are different from other nonprofit groups, such as trade associations, and clubs, which tend to exist to serve only their members and do not have a broader public mission. True member Associations and the needs of public benefit organizations are so different as to warrant separate legislation.

• Level the playing field with business and cut the red tape. Help us ensure the legislation is flexible, responsive and enabling. ONN proposes that the revised legislation be structured enough to ensure certain minimum standards in organizations that serve the larger public benefit, but flexible enough not to seem to micro-manage. Many public benefit corporations serve very particular needs in communities, and in order for them to be responsive to those needs they require flexibility in their bylaws and their organizational and board structures.Enabling corporate legislation for public benefit organizations must not unduly disadvantage public benefit corporations. The legislation must provide similar rights and obligations provided business corporations such as “as of right” incorporation, “powers of a natural person”, and impose similar duties of care and director personal liability protections. The Act must provide flexibility in Director and membership size and structures to suit the wide diversity of public benefit organizations. The act also needs to provide for modern methods (e.g. electronic) of communicating with directors and members.

• Help us keep the Public Trust. We need to ensure transparency and accountability for public benefit. The unique nature of the Public Benefit Corporation is that it exists to serve the public good. As such it enjoys tax advantages, public recognition and trust. The Act must support this contract with the public by providing for transparency of corporate information, checks and balances on the operation of the corporation and robust financial constraints that ensure revenues are dedicated to the public good.

• Demand there be no limit on the capacity of public benefit corporations to earn money and join our call for increasing the capacity of public benefit corporations to raise capital funds.

These are new requests of government and they will not happen without broad based support from the field. We urge you to become active and write in support of these critical changes. Reply by May 31st, 2208 to:

Corporations Act Modernization
Ministry of Government Services
Policy Branch
777 Bay Street
5th Floor – Suite 501
Toronto, ON M7A 2J3
(416) 326-8877

Email: business.law@ontario.ca

The ONN has just released Revising the Corporations Act - A Brief to the Sector. The recommendations are found in the Recommendations at a Glance.

Highlights include a call for:

• A dedicated Not-for-Profit Act;
• Reform of charitable regulation and oversight in addition to revising the Corporations Act;
• No regulation or restriction on the capacity of a not-for-profit corporation to earn revenues;
• Clear distribution constraints on nonprofits to ensure public benefit;
• and more…..

You can read the full report or please consider passing the recommendations found on pages 3 and 4 to those who might be interested such as Boards of Directors.

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My research on the administrative burden resulting from funder accountability and compliance practices is now available. Undertaken with the support of the Wellesley Institute, the studies findings will help nonprofit organizations and their funders improve their effectiveness and responsiveness.

Some excerpts:

“The findings are sobering. The administrative burden placed by funders on community nonprofit organizations is so heavy and so unrelenting, and places so many constraints on their ability to operate that it is a wonder they can deliver any services effectively.

The executive directors of these agencies describe an environment in which their key responsibility is to manage the demands of funders and the many constraints and problems funders impose on the organization so that the staff can actually get some work done and meet community needs.

In sum, the overload of information requests and filings, the lack of delegation of decision-making to the agencies, the problems caused by the granting processes, and the failure of funders to consult with grantees were all identified by participating organizations as contributing to the difficult administrative burden.

The data are clear: we can’t afford to do business this way. It is in everyone’s interest to reform the funding process by minimizing the administrative burden and maximizing the flexibility of agencies to adapt, respond, and innovate, with a focus on results, not controls. It is urgent that funders, nonprofit organizations, and local communities come together to create new administrative systems that can most effectively support the objectives of improving community well-being.”

Check out the eight page Executive Summary and the longer report containing the detail agencies and funders need to begin reforming the system.

Executive Summary (PDF)

Full Report (PDF)

If you need a black and white version of the report go to the Wellesley Institute Website www.wellesleyinstitute.com