Nonprofits ride out tax change
Jan 19, 2019
In first year of new rules for giving, the negative effect that some had feared has not materialized.
Leaders of the St. Paul Chamber Orchestra were feeling a bit uneasy as year’s end approached. So were the folks at the Animal Humane Society and Loaves and Fishes.
All three nonprofits rely on year-end donations to fund their missions, which range from performing great music, to finding homes for orphaned animals, to feeding the hungry. The nonprofit world has been worried donations would drop off ever since federal tax changes threatened to reduce the number of taxpayers who itemize charitable deductions.
But as the books close on 2018, those dire predictions so far haven’t materialized. Many Twin Cities nonprofits, ranging from arts organizations to disaster relief agencies and safety net charities, say they’ve reached or come close to achieving their end-of-year fundraising goals.
“The initial, first wave of consequences to the tax changes is subtle to nonexistent,” said Brian Molohon, Union Gospel Mission’s vice president of development.
“There was a lot of uncertainty about how it would play out, but we didn’t see any changes in giving behavior,” said Katie Berg, the chamber orchestra’s development director.
Many Minnesota nonprofits are not reporting significant changes to end-of-year giving, said Kari Aanestad, advancement director for the Minnesota Council of Nonprofits.
The council will conduct a formal survey this winter to gather firm data, but the council’s executive director, Jon Pratt, said there’s a chance that the consequences they feared may never materialize.
“It’s really going to take two years to know what the effect is,” he said.
The St. Paul-based Union Gospel Mission, which runs a homeless shelter and rehabilitation programming, finished just 1 percent below its year-end giving goal of $6.5 million, according to preliminary numbers.
“If that’s where we end up and nothing else trickles in, I am doing a dance of joy down the hallway,” Molohon said. “I can make up that 1 percent during the rest of the year.”
But nonprofit leaders say they aren’t breathing easy yet. They think it could take another year to determine the impact after people figure out their taxes, digest how the changes affect them and subsequently adjust their giving.
“It’s still too early to tell whether the tax changes are changing giving patterns,” said Christopher Stevens, the Walker Art Center’s chief of advancement.
Donations to the Walker have held steady, Stevens said, “but it’s very early, culturally, as people get a better understanding about how this works. That doesn’t mean it’s not coming. It’s just that we haven’t felt it yet.”
Tax impact unclear
For many nonprofits, the final three months of the year are a critical period when a majority of their annual donations arrive. It’s a season when people across all faith traditions are lighting candles, singing holiday songs and feeling generous. And they want to make donations by then so they can itemize them.
After comprehensive tax reform in 1986, some predicted nonprofits would suffer. That didn’t happen, Pratt said.
Still, nonprofit leaders say they’d like to see potential barriers to giving removed. The new federal tax law changes that took effect in 2018 may have the effect of removing that incentive for many taxpayers.
Under the new tax code, the standard deduction for couples has nearly doubled to $24,000. People can still itemize charitable contributions on their federal tax return, but the higher standard deduction likely means that fewer people will be itemizing in general.
Fewer households likely to itemize
According to the Tax Policy Center, a national think tank based in Washington, D.C., an estimated 11 percent of U.S. households will itemize deductions this year, down from 26 percent. The state Department of Revenue has projected that 13 percent of Minnesotans will itemize deductions, down from 36 percent, according to a Council of Nonprofits report.
The Council on Foundations, based in Arlington, Va., predicted a potential $16 billion to $24 billion decrease in annual charitable giving when the tax reform bill was signed into law by President Donald Trump in December 2017.
Hadar Susskind, the council’s senior vice president of government affairs, said there are some early indications. Some charities saw their donor pool shrink in 2018, he said, and the more modest gifts tended to be smaller than in previous years. But “mostly, we still don’t know,” he said.
Officials with the Minneapolis Foundation, where individuals and families set up donor-advised funds often compared to charitable checking accounts, said they saw a slight dip in the amount of money rolled into those funds at year’s end. But those fund holders continued to use the money they had in those accounts to give generously to charities, said Ellen Goldberg Luger, senior vice president of philanthropic services.
Loaves and Fishes officials glided into December after receiving near-record donations in November. “December was down 31 percent,” Executive Director Cathy Maes said.
The charity still finished slightly up at the end of the year compared with 2017, but the December dive was unnerving. “That makes me pause,” Maes said. “I am hoping that is not a sign for the future.”
Some charities are celebrating increases in giving.
Community Action Partnership of Scott, Carver and Dakota counties, which runs a variety of programs including Head Start, Meals on Wheels and a food pantry, saw its monetary donations climb by $13,000. The number of individual donors also rose.
The Animal Humane Society ended December just 1 percent short of its $1.9 million goal and “significantly ahead” of the previous December,” said Director of Philanthropy Meghan Bethke.
Bethke said the year-end totals only bolstered her belief that people give from the heart, and not just because of the bottom line.
“We live in a really generous philanthropic community,” she said. “Ultimately, people give because the work and causes are important to them.”