Some non-profits don't deserve tax exemptions

Jeff Alworth

I guess financial crises have one benefit--they allow legislators to look for bills that everyone thinks are a good idea. The Oregonian reports on Senate Bill 40--a great example of such a bill that would remove tax exemptions from non-profits that spend less than 30% of their annual budgets on services:

The bill is "designed to address a very real and present problem in Oregon," [Oregon Attorney General John] Kroger told the Senate Committee on Finance and Revenue at a hearing last month. "And that is charities that are registered in the state and raising money in the state but go on to do almost no charitable work with the money they raise. Some of these charities are little more than scams."

Amen. In fact, the AG's office compiled a list of the twenty worst offenders (.pdf) and none of them are based in Oregon. These twenty charities devote between 3.6% (!) and 24.5% to serving their mission. They keep the rest. In addition to losing their tax-exempt status, these bad actors would have to explicitly inform donors that their donations weren't tax-deductible or pay fines. All of this strikes me as perfectly reasonable: why should the state underwrite organizations that are effectively (if not intentionally--and I don't have the data to know one way or another) scamming their donors?

Sometimes, donors naively expect all their money to go directly to services--not recognizing that buildings, staff, equipment, and taxes cost money, too. But no non-profit can claim to actually be serving its mission if it skims more than two-thirds off the top. I was the president of the board of directors for a small Buddhist nonprofit in town, and we were extremely proud of our record of directing money toward services. In our ongoing capital campaign to build a rural long-retreat center, we managed to devote 81% directly to facility construction. As an all-volunteer organization, we were in a better position than most. Charity Watch grades anything above 60% a satisfactory, while "highly efficient" organizations devote more than 75% to services.

So far, no one has testified against the bill, which isn't surprising. Non-profits do exceptional work in society, providing over a trillion dollars in services every year across the country. But the state has an interest in identifying those who try to dupe people and siphon off dollars for bogus organizations. It both removes a corrupting influence and supports those who do truly important work.

By Jeff Alworth March 17, 2011