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Thursday, 08 March 2012 11:25

Tax credit elimination forces nonprofits to change tactics

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MICHIGAN — It’s been a tough decade for Michigan’s nonprofit fundraisers. A perfect storm of economic forces increased the demand for nonprofit services while also forcing the donors who support them to tighten their belts.

Now the repeal of the Michigan Charitable Tax Credit promises a whole new set of challenges for fundraisers trying to solicit donations in what remains a tough economy.

Kyle Caldwell“It’s a difficult situation for any fundraiser,” said Kyle Caldwell, president of the Michigan Nonprofit Association. “They are essentially losing a tool.”

The credit has proven to be an extremely effective tool, according to Bridget Clark Whitney, executive director at Kids’ Food Basket, a group that provides sack suppers to children in the greater Grand Rapids area.

Kids’ Food Basket began educating donors about the tax credit in 2009 — a year into the global financial crisis that curbed charitable giving worldwide. By 2011, the organization had more than doubled the number of children they served.

“If we look at our year-end donations in 2011, it was clear that our supporters took advantage of the tax credit,” Whitney told MiBiz. “We were able to strengthen relationships with current donors and attract new donors. The bottom line is: We fed more local hungry children because of the tax credit.”

In the late 1980s, Michigan was the first state to adopt a tax credit to stimulate philanthropy among low- and middle-income donors. As the state’s economy declined, the credit became an increasingly popular tool to help donors stretch their charitable dollars.

The concept is simple: Taxpayers give to charities in three categories — homeless shelters and food banks, public institutions and community foundations — and the state subtracts up to 50 percent of their contributions from the total state tax they owe.

Unlike federal deductions, the state tax credits did not reduce taxable income. They were not added to refunds, only subtracted from taxes owed. And they were capped: $300 for individuals, $600 for couples and $5,000 for businesses, estates and trusts.

Knocking a few hundred dollars off a household’s tax bill may not do much for a mega-donor. But for low- and middle-income donors, this incentive can make all the difference — not in whether they give, but in how much, said Caldwell.

“We’ve seen a one-to-one correspondence with incentives in the tax code,” Caldwell said. “You are likely to give more than if you didn’t know about the incentive.”

Fundraisers worth their salt always do two things: cultivate existing donors over time and constantly attract new supporters.

The more donors contribute, the more nonprofits give back. Face time, phone calls, handwritten notes and special events require an investment of human and financial resources, but the methods are competitive, costing five to ten cents per dollar raised compared to one dollar per dollar raised — the standard for gifts solicited through direct mail, according the Association of Fundraising Professionals.

That said, it is vital that fundraisers replenish the pool of grassroots donors — something that tax deductions and credits help nonprofits do.

Diana Sieger“You need people in the pipeline,” said Grand Rapids Community Foundation President Diana Sieger. “And the tax credit was a good way to provide that avenue for people.”

The credit presented a particular benefit to GRCF. Though the foundation’s planned giving programs typically attract older donors, younger donors were more likely to benefit from the credit because of their tax bracket.

“It was a great tool to reach the younger donors who weren’t ready to start estate planning,” Sieger said.

All these benefits beg the question: Why was the tax credit repealed in the first place?

“I think what happened here was in the rush to clean up the tax code, this particular tax credit got scooped up,” Caldwell said. “The tax credit cost the state no more than $50 million and that was leveraged into $100 million in charitable giving. The repeal didn’t save money because (the credit) leveraged so much money.”

Last year, along with Michigan Council of Foundations president Rob Collier, Caldwell presented other options to the legislature, including consolidating the three tax credits into a single incentive.

“That didn’t fly either,” Sieger said bluntly. But she said she’s not giving up hope. “We’ll see if there is any movement in Lansing to see if we could get the credit restored.”

If there is such a movement, fundraisers won’t be leading it, Caldwell predicts.

“There’s not going to be big outcry about it because fundraisers still need to be doing ‘asks’ of donors,” said Caldwell. “You’ll also see people who say that it won’t make any difference.”

Ultimately, no one will know the full impact of the tax credit’s repeal on charitable giving until 2013, when 2012 tax filings are made available.

“As far as what’s going to happen: We just don’t know until we have the experience,” Sieger said. “I don’t know if we’re going to see a dramatic drop in donations. It really rests with the donor.”

Sieger plans to counter the impact of the repeal by stepping up outreach to the next generation of donors, primarily through social media.

“The tax credit was important to us, but we have to move on,” Sieger said. “In terms of what are we going to do, we are constantly coming up with ways to reach out to a younger audience. The best way that we have found (is) being active in social media.”

The foundation maintains Facebook and Twitter pages, and many staff members have personal accounts they regularly update. And it’s starting to pay off, Sieger said. Social media has opened the door to new relationships with “young creatives” and has even boosted attendance at Knotty Cocktails — early evening discussions about community issues.

“Frankly, anyone in nonprofit and business who doesn’t do this is foolish. Being active in social media has helped us tremendously over the past five years,” said Sieger. “If people don’t have their toe in the water yet with reaching out to younger audiences, they need to get cracking. It’s fun. Just dive in and do it.”

But one thing is for certain: As nonprofits continue to change, so should the community’s expectations of them.

“I think everyone expects that nonprofits will do what they always do, that they will adapt,” said Caldwell. “And we will. But the idea of what nonprofits can do will have to change.”

Read 1901 times Last modified on Sunday, 12 August 2012 11:37

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