Government Debt & Nonprofits

As governments struggle with debt they have legislated themselves into, the ability of nonprofits to count on government funding is being severely reduced, and that is a good thing.

The animating ethic of nonprofit work are the free gifts from philanthropists to perform valuable service for the public.

The coercive aspects of tax money funding such work has created a morass of nonprofits largely replicating the stifling atmosphere of bureaucracies where providing and accessing services to individuals is very burdensome.

As reported in Governing, this is a financial situation likely to get much worse, but it doesn’t have to.

An excerpt.

“States, cities and many nations around the globe are facing an existential threat in the form of a massive fiscal imbalance between expected revenues and promised expenditures. They are bracing before previously unseen levels of debt and deficits, many in fact may be on the verge of bankruptcy.

“Some are already feeling the effects of the wave of debt. The most notable example is Greece, but Spain, Italy, Ireland and Portugal are all dealing with serious fiscal distress, while countries such as the United Kingdom and the United States are looking at sobering forecasts.

“States such as California, New Jersey and New York are currently staving off insolvency thanks to federal largesse in the form of the stimulus package -- and even with $30 billion in such "bailout" funds from Washington, D.C., California was issuing IOUs in lieu of payment during the summer of 2009 and faced a $20 billion gap at the start of 2010.

“Local governments from Vallejo, Calif., (which declared bankruptcy in 2008) to Detroit are looking at a death spiral of tax hikes and population flight.

“The underlying threat is something we call "the Gap." The Gap is a twofold problem, consisting of a fiscal gap between revenue and expenditures and a performance gap between the way government currently operates and the realities of the new economy.

“The fiscal gap has both a cyclical and a structural component. Its cyclical guise emerges when the economic cycle dips, causing public spending to outstrip revenues in the short to medium term. This is happening all over the world as it happened in previous recessions, and it will happen in future ones. The prevailing wisdom of 20th century economics was that these cyclical downturns were acceptable because the ups and downs of the economic cycle balance public finances.

“Given the fiscal outlook as we enter the 21st century, however, this is no longer valid. The structural nature of the current Gap, while exacerbated by the cyclical downturn, is more fundamental. That is, even if there is an economic upturn, a sizable Gap will persist. Democratic societies have over-committed their current and future resources. Steadily rising costs for social security, old-age pensions and health-care benefits, together with significant demographic shifts, mean that incremental changes will prove insufficient. Permanently dealing with The Gap requires fundamentally different thinking and actions.

“At first glance, closing the Gap appears to be an economic problem, a financial puzzle that can be solved by selecting the right set of policy choices. It is not. Rather, it is a challenge of the entire democratic governance model. Politicians, voters, political action groups, public employee unions and a whole slew of competing interests make the political reality of navigating the path to sustainability particularly daunting.”