Nonprofits as Policy Solutions to the Burden of Government

Herrington J. Bryce

• Publisher: De Gruyter
• Year: 2017
• eBook ISBN: 9781501505829
• Edition: 1
• Topic: Business
• Subtopic: Business Development
• Index: Business

This book addresses a specific subset of nonprofits that are chartered with a single mission: decrease the burden of government. Designing and engaging nonprofits to lessen the burden of government requires a specific description and acknowledgement of the burden to be lessened, and these may include the provision of infrastructure, the relief of debt, or the provision of general public services that are not motivated by charity. It also requires the assignment of specific operating powers to the nonprofit including the power of eminent domain. This book explores these and other related topics including the avoidance of resource dependence on government when attempting to reduce its burden.

The book is addressed to the policy makers and rule makers who design policies that affect the ability of the nonprofit to effectively lessen the burden of government. It is also addressed to public administrators in search of innovative ways of implementing these policies consistent with the laws, and to the creative nonprofit managers who are charged with carrying out the mission often in collaboration with the government or other entities. To the advanced student in all related fields, the author offers not only material for discussion, but enables discovery of what is possible by giving key examples of organizations meeting the terms and objective of lessening a significant burden of government.

Chapter 1 – Purpose, Policy, Theory, Definitions and Context

Purpose

The public policy issues that motivate this book exist in many countries and levels of government: public services that are needed but are not necessarily charitable; governments strapped both in financial resources and in capacity; the unfavorable public response to increasing the size of government or its intrusion; the reluctance of the public to increase taxes or to enter into public debt to pay for these urgent public needs, the stark choice of postponing them—as in the case of infrastructure and environmental investments—or simply making them dormant in the public policy agenda or doing with inferior substitutes. Can the nonprofit offer a way out? What is the supporting theory and evidence?

This book is designed to serve policy makers and practitioners, advanced executive courses, professional seminars in public policy, public administration, government, and organization theory with a specific focus on the design and engagement of highly creative and sustainable nonprofits to advance the public interest by assuming certain burdens of government. The resulting mission of these organizations may go well beyond charitable and philanthropic purposes—and discharging this burden may require complex collaboration.

This book is intended to develop and to provide a perspective grounded in fact and in law that would assist public policy makers who design projects and programs and their delivery mechanisms, and public administrators and nonprofit managers who will have the responsibility to implement such policies through the mechanism of a nonprofit entity.

This book is therefore not a theoretical exercise and not about improving operating or financial strategies for nonprofits. Legislative and executive bodies of government craft policies and laws to meet an objective and it is up to the rule-makers who write the operating rules, the public administrators who administer them, and the nonprofit to implement them so they work for the public good and not become a failed policy.

Making these ideas become reality requires a particular organizational and managerial perspective and the purposeful embedding of specific powers to enable the organization to function with minimum, if any, dependence on government and to grow as the demand for its services grows. What these are and how they are enabled for the specific purpose of relieving the burden of government as this is defined below and, indeed, by law are the central questions of this book.

This book proceeds with the following logic and organization: The design and engagement of highly sustainable nonprofits to relieve the burden of government requires (a) a definition and description of the specific burden and its availability for transfer and acceptance; (b) a definition and conceptualization of the appropriate nonprofit in terms of specific operating characteristics consistent with the constraints of corporate and tax laws; (c) an identification of the ability of the nonprofit to execute the mission and its capability to finance it without resource dependence on the government; (d) the organization’s ability to manage assets so that they are protected against corruption and against unauthorized, uncontrolled, or uncoordinated spending (protecting the organization against the risk of failing or reversing the burden to the government); and (e) that the organization is prepared to grow to match the natural growth in the demand for that service—sustaining the utility of the transfer.

The book follows this logic and order and rests on the following concepts:

The Burden of Government

The operative foundation of this book is taken fromthe Internal Revenue Service publication “L. Instrumentalities Lessening the Burden of Government“ from a series of articles published as the Exempt Organizations Continuing Professional Education (CPE) Technical Instruction Program for Fiscal Year 1984 (https://www.irs.gov/pub/irs-tege/eotopicl84.pdf) and from other IRS publications as cited throughout the book. They say:

Lessening the burdens of government is itself charitable purpose and there is no requirement that an organization be doubly charitable in order to qualify under IRC 501(c)(3) …

This means that lessening the burden of government is a sufficient reason for qualifying for a 501(c)(3) status. Accordingly,

… there are… numerous examples of situations in which an organization was held to be charitable even though it fulfilled no charitable purpose beyond relieving the burdens of government.

This is the case where provision is made for the establishment or maintenance of parks, water supply, fire protection, public or community buildings, roads and bridges, or for various other purposes which are normally taken care of by the government…for such purposes are charitable, although they benefit the rich as well as the poor.

For example, an organization was formed to provide transportation to an isolated part of a city not served by the city bus system. The organization was given 501(c)(3) status based on the sole purpose that it relieved the burden on government without reference to or consideration of what these isolated parts of the city were, who inhabited them, or any such poverty or distressed or community development. The relevant facts quoted were:

–the project and organization were approved by the local government and local government collaborated

–the receipts were from fares, contributions, and governmental grants

–the organization was formed in conformity with a statute that defined its structure and operation

So, when we isolate and focus on “lessening the burden of government,” we are employing the concept in this book as it is within the Internal Revenue Code as stated above, and also in its “Lessening the Burdens of Government,” guidance by Robert Routhian and Amy Henchey (https://www.irs.gov/pub/irs-tege/eotopicb93.pdf). While it does not require adherence to the traditional concept of charity; there are constraints on acceptable projects as well as organizational design and these will shape the discussion of this book. We must not only know the rules, but what they imply or necessitate in terms of perspective, power, structure, and performance. The IRS gives the rules, but it does not define how, what structure, strategies and tools, or even when the concept may be engaged. That is for the policymaker and rule-maker, the public administrator, and nonprofit management and will be described in this book.

Lessening the burden of government is an expansive concept that invites imagination as to its proper use. Lessening the burden of government covers any activity that is a planned undertaking of a government, especially if mandated by its laws, a current undertaking of a government, or an activity in which a government is a collaborator or an initiator. In so doing, the organization can and does participate with or for the government and demonstrably reduces the monetary or other resource cost of government. The activity does not have to fall within the specifically enumerated categories allowed under IRC 501(c)(3), but if the organization wishes to have that status and its benefits, it must comply with the requirements (as explained in Chapters 1 and 2) of that category whether the organization is formed by citizens or government. But, as the IRS states if that status is not available, the organization may qualify for exemption as lessening the burden of government under IRC Section 501(c)(4) or (6) or do so as an instrumentality of government all descred in this book.

Here is an example using housing to illustrate the concept of lessening the burden of government: An organization providing moderate-income housing may be denied a 501(c)(3) certification because that category of certification refers to low- rather than to moderate-income which allows some 25 of the residents to be above the poverty line. By meeting an additional requirement (that its rental prices do not disqualify poor people), it could obtain exemption either as a 501(c)(3) or (4) as an organization designed to lessen the burden of government by showing, among other things, that it was created subject to a stated government policy, has the structure to bring about an actual lessening of the use of resources by the government, and collaborates with the government for a public benefit.

Similarly, the principal reason for designing a health care organization may not be a charitable one, but one that reduces the burden of government by financing health activities for the benefit of the public. This burden may begin and end with the construction and provision for the management of a hospital owned by the public or government as described in Revenue Procedure 63–20. The implication being that the lessening of the burden of government offers an opportunity to expand the utility of the nonprofit to (a) provide a needed public service beyond the traditional charity, and (b) lessen the burden of government as a specific and traceable outcome.

But what public services? This definition provides for activities which are not necessarily traditionally charitable but where the motivation may be to (a) reduce the resource burden of government, or the size or extension of government; (b) increase the efficiency of government and lower the delivery time or cost of a project; (c) reduce or avoid the government’s debt burdens—especially those that encumber current or future taxes or crowd-out other needed government-provided projects; and (d) to build a supportive infrastructure that reduces the burden of government in the variety of ways in which this may occur; for example, building and managing a structure in which the government or its agencies are the principal users and for which they pay rent even at a market rate, or to produce a project the government might otherwise need to produce itself for use of the general public and for which a user fee may be charged. The outcome must always be of meaningful benefit to the general public.

There is strong motivation for reducing the burden of government by the general public, policy makers, the government and its agencies, and the nonprofits with the capacity to deliver. To summarize, “lessening the burden of government” has a specific meaning and specific definitional hurdle in law and in its application to public policy. It must be: (a) a specific burden which the government acknowledges must exist and be addressed, (b) it must affect the general public, and (c) the nonprofit whether created by citizens or government must be equipped to reduce that burden in a verifiable way. It is not for the organization to claim that because it does what it does that it is reducing the burden of government. It is for the government to declare or affirm by its actions to request, initiate, or collaborate with the organization. This is the stipulation in law and in the citation of law above.

While we shall use federal, state, local, and even some foreign examples, federal law will be the ruling authority in this book. As we write, states and their localities differ (as they have a constitutional right to do) on how they perceive lessening a burden of their government. In Wexford Medical Group v. City of Cadillac, 474 Mich. At 219, 713 N.W.2d at 748, the Michigan Supreme Court ruled that what mattered is not the ability of the organization to prove that its action directly relieves a burden of government, but that its action relieves or avoids a condition that would have led to a burden on government. In Provena Covenant Medical Center, et al., v. the Department of Revenue, et al., the Illinois Supreme Court ruled otherwise. These nuances matter. Provena was denied (http://www.illinoiscourts.gov/opinions/supremecourt/2010/march/107328.pdf).

Therefore, sticking to the federal definition is more than for convenience. It is required for the organization to get exemption on the federal level which is virtually required by states to get exemption on the state and local levels; so, it has supremacy in law, policy, and in this book.

Perspective, Collaboration, Competence

A government burden may be too large, too complex, or require collaboration— even cross-collaboration (Bryson, Crosby, Stone, 2015, see endnote)—with other institutional forms. In the spirit of Understanding Institutional Diversity (Ostrom 2005), we see that a diversity of institutional forms can relieve the burden and pressures on government and that may, at times, be better (Ostrom 2012, see endnote). Implementing what is being described in this book will require: (a) perspective, or creativity, since this burden reduction is not traditional charity or humanitarian work; (b) a variety of forms of collaboration to bring about desired results; (c) sustained organizational competence to do it; and (d) a realization that a key Internal Revenue Service test to whether or not a nonprofit is lessening the burden of government is the extent to which it is in a collaborative arrangement with that government. It does not specify the form of collaboration so various forms of formal collaboration are discussed in this book.

Perspective

This book focuses on the details of operating rules, powers, capabilities, and the perspectives of management, government, the public and collaborators, in the assumption of a burden of government. For example, one of the experimental studies cited suggests that for some purposes, the public prefers to pay for a designated project by fees and contributions rather than by taxes. This, of course, is the principle behind user fees upon which a whole category of nonprofits depends. Perspective is important. This book is not principally using the nonprofit to solve the welfare problems of society; rather, it is about lifting a burden of the state that affects the public as allowed by current law. More policy makers may implement it if they can figure out how—and perhaps this book can contribute to that answer by presenting a structural framework and essential tools for the policy to work. It begins with perspective and creativity.

Here is Former British Prime Minister, David Cameron (https://www.gov.uk/government/speeches/pms-speech-on-big-society) speaking in 2011 about the need to involve the nonprofit sector (The Big Society) in relieving the burden of government:

To the skeptics about The Big Society, I suggest that they go and look at what has happened in social housing over the last 20 years. Twenty years ago, housing associations were formed. They were very small; t...

Table of contents

• Cover
• Title
• Copyright
• Acknowledgements
• Contents
• Preface
• Chapter 1 – Purpose, Policy, Theory, Definitions and Context
• Chapter 2 – Designing, Empowering and Engaging the Nonprofit to Lessen the Burden of Government
• Chapter 3 – Empowering the Nonprofit to Lessen the Burden of Government
• Chapter 4 – Nonprofits as Doers in Reducing the Burden of Government
• Chapter 5 – Nonprofit as Financiers and Facilitators in Reducing the Burden of Government
• Chapter 6 – Government Created Nonprofits to Lessen the Burden of Government
• Chapter 7 – Decision-Making and Governance Structure in Lessening the Burden of Government
• Chapter 8 – Financing the Burden through Contributions
• Chapter 9 – Financing the Burden through Business Earnings
• Chapter 10 – Financing the Burden through Debt
• Chapter 11 – Establishing Cash Flows for Sustainability
• Chapter 12 – Corruption and Control: Protecting the Assets for Lessening the Burden of Government
• Chapter 13 – Discussion and Dialogue
• Index