Nonprofits top agenda of new congress: deficits put stress on programs.

Republicans gained control of Congress during midterm elections, but when the 108th Congress convenes this month the nonprofit community is poised to be hip-deep in the debate.

Bass listed environmental issues, civil rights, an ability to deliver services and government's role in providing resources, and deregulation as the hot issues.

"I think the real issue for nonprofits isn't the party politics," said Gary Bass, executive director of Washington, D.C.-based OMB Watch, a watchdog group involved in nonprofit advocacy. "It's the substantive policy debates that are coming up. There are fundamental issues that we have to grapple with at the local, state and federal level."

Additionally, this Congress could tackle several legislative and judicial issues that will resonate for decades. Those issues likely will involve political wrangling.

Expect federal debates on permanent tax cuts affecting estate taxes and charitable giving, and President Bush's federal judicial nominees gaining more approvals because Republicans head the Senate Judicial Committee. The Bush Administration is renewing a push for faith-based initiatives, and its sister legislation, the so-called CARE Act.

At the state level nothing is more pressing than filling budget holes, which in some cases are billions of dollars. States' deficits outweigh other election impacts regardless of party affiliations, said Abby Levine, public policy analyst at National Council of Nonprofit Associations (NCNA), a network of state and regional nonprofit associations.

State budget deficits

When NCNA asked nonprofits for important agenda items, they overwhelmingly replied, it's the "Budget, Stupid. Why are you asking," Levine said. "Right now, I think everybody is really focused on making ends meet."

According to a recent National Governors Association (NGA) report 37 states had to reduce enacted budgets by approximately $12.8 billion in fiscal year 2002. The 2003 budget outlook isn't any better.

Weak state tax systems, health care cost jumps, a collapse of capital gains tax revenue, and less money because of the weakened economy are factors of states crises, according to NGA.

Overspending has been a popular scapegoat for deficits, but a recent opinion/editorial piece in The Baltimore Sun by Peter Berns, executive director of Maryland Association of Nonprofit Organizations, explained reduced revenues--not state spending--is to blame for Maryland's budget problems. Berns wrote that despite Maryland's wealth, it spends less than most states on a range of public services.

Some NCNA members suggest tax increases as a salve.

"No one wants to increase taxes," Levine said. 'But we really need to look at the revenue side and where our money is coming from."

Several states are protecting estate tax revenues by unlinking from the federal changes, according to NCNA and Washington, D.C.-based Center on Budget and Policy Priorities. In most cases, they are recognizing federal tax laws before recent changes.

But revenue shortages cut both ways, and nonprofits face challenges to exemption from taxes such as property taxes.

NCNA is compiling a "tool kit" for that issue, Levine said.

Pat Read, vice president of public affairs at Independent Sector (IS), is hearing talk of municipalities and state legislature officials mulling changes to redefine who's exempt from property and sales taxes. Some plans look at applying payment in lieu of taxes, or payment for services, to all employers whether they're nonprofit, for-profit or government, Read said. Some municipalities already charge per-employee-fees for services such as water, sewage, and trash collection, and it's gaining momentum at the state level, Read said.

For example, government officials are trying to charge a Santa Fe, N.M. museum property taxes, said Ed Able, president and CEO of the American Association of Museums.

"This is typical of what happens," Able said. "Every time state and local budgets get tight they start looking to nonprofits because we don't pay property, income and most sales taxes."

Fairfax County, Va., is suspending review of tax-exempt status for groups that fall beyond a specific definition within the tax code because of financial constraints, said Edwin de Castro, management analyst at the county Department of Tax Administration. Those groups seeking tax-exempt status must eventually receive approval from the General Assembly, but the county isn't sending any more for approval as of October. The moratorium will affect few organizations, de Castro said.

"The budget crunch is already hitting at the local government level," Read said. "It's hitting states fast and furious, and will obviously figure into appropriation decisions at the federal level next year."

Federal tax cuts

Republican candidates campaigned partly on the importance of tax cuts to stimulate the economy and thicken people's wallets, and the Bush Administration repeatedly stumps for making recently passed tax cuts permanent.

Republican control of the Senate (they hold 51 votes) will strengthen the president's ability to pass his agenda, said Kevin Sheridan, a Republican National Committee spokesman.

White House press officials didn't return calls seeking comment.

One battle could be the permanent repeal of the estate tax.

IS contends permanent estate tax repeal will lead to decreases in charitable bequests by $1.5 billion to $5 billion based on 1999 numbers.

IS officials and members feel further tax cuts shouldn't happen without charitable giving incentives, Read said.

Senate budget rules require 60 votes for repeal. Those rules are extended to April 15, but after that the debate is an open issue, according to IS.

John Von Kannon, vice president and treasurer of The Heritage Foundation, a conservative think tank in Washington, D.C., supports permanent tax repeal. Tax cuts could stimulate the economy and provide donors more money to give charities, Von Kannon said.

He added that Congress proposals eliminating estate taxes would do away with a stepped-up basis of capital gains, so wealthy estates still retain a tax advantage for charity giving.

That view isn't shared by all.

The thought that cutting taxes gives people more discretionary money is irrelevant, because even if people have more money their giving tends to go to churches, universities, and elite nonprofits, Bass said.

"The issue is who receives the money, and what are the purposes the money is used for," Bass said.

One of the most far-reaching aspects of the Republicans' position in the Senate is approval of federal court judicial nominees.

Previously, Democrats had kept nominees viewed by some as "extremist conservatives" from gaining positions.

With approximately 75 federal judicial vacancies, according to Alliance for Justice, and rumors of a few Supreme Court Justices retiring, the shaping of the judicial landscape is at stake.

Because voters expressed a will for a Republican Senate, "we think it will probably mean good things for the resident's judicial nominations," Sheridan said.

Nan Aron, President of Washington, D.C.-based Alliance for Justice (AFJ) disagrees with those who say the election results give the president a "free ride" to reshape the judiciary.

Aron challenged senators to stand firm against nominees, if Bush attempts "to pack the courts with conservative ideologues."

AFJ is a national advocacy group that fights for civil and women's rights and is involved in influencing approval of federal judicial nominees.

But judicial nominees, for the most part, "don't see it as let's get the power and we can legislate from the bench," Von Kannon said. He described judicial nominees as favoring "judicial restraint and original intent of the founders."

Regardless, AJF is intensifying research of judicial nominees such as, reviewing individual records such as former judges' opinions and cases former lawyers pursued, Aron said.

But politics, policies and getting necessary votes aren't open and closed exercises.

Melissa Rogers, executive director of nonpartisan Pew Forum on Religion and Public Life said: "The elections didn't change the fact that the Senate is still the Senate, and there are a lot of rules there that can hang up even something that is favored by the party that controls the chamber."

RELATED ARTICLE: 'Faith' Expected To Be Put On Trial

Faith-based groups seeking federal money face the somber reality that some of the contentious issues surrounding the Bush Administration's initiative will gain clarity only through litigation.

It's one more cost that those working at the grassroots level can't afford.

"We know that nothing is legal until it's been adjudicated and been declared legal," said Jethro James Jr., urban development executive at Public Service Electric and Gas Company headquartered in Newark. "The cost of a legal fight could make an organization say, 'I'll just go as I am' versus get involved with the quagmire that's going to happen."

James was one of approximately 100 people who attended a recent faith-based initiative panel discussion at Seton Hall University in South Orange, NJ.

The federal initiative is a firestorm of controversy because some view it as a venue to wage battle over important Constitutional issues, such as separation of church and state, said panelist Melissa Rogers, executive director of Washington, D.C.-based Pew Forum on Religious and Public Life.

A few issues are to what extent a provider can be religious and still be eligible to receive government contracts, regulation of the granting process and new groups.

James Towey, director of the White House Office of Faith-Based and Community Initiatives, said during the event that the controversy concerns charitable choice, which essentially allows faith-based organizations to receive federal grants for social services while retaining their religious character. The government is prohibited from funding religion, but it can send funding to secular services at those organizations, Rogers said.

Still, clarity isn't presently there with some of these issues. Those on the cusp are going to result in litigadon, one panelist said.

One question is whether religious providers will be held to the same licensing, monitoring and civil right compliance as secular organizations, Rogers said.

The court's traditional approach has been if an organization is so "pervasively" religious that secular services can't be separated from other services, then that group generally wouldn't receive government funding, Rogers said.

But court precedent could change in the coming years, pending President Bush's federal judicial nominees and if just one or two U.S. Supreme Court justices retire, Rogers said.

Safe harbors exist, and organizations may be able to protect themselves through so-called intermediary organizations, which are groups that the federal government will give money to so they can make sub-grants to smaller organizations.

Rogers warned that even with intermediary organizations Constitutional issues would play out but in different places. Courts prefer not to make decisions until there is a live case in front of them and don't issue advisory opinions, Rogers said.

"Unless there is a clear signal that there is religious freedom for the service providers, then a lot of them are not going to get involved," said Acton Institute Senior Fellow Marvin Olasky, in a telephone interview.

"There needs to be clarity," said Olasky who helped shape Bush's Texas faith-based initiative and still talks with officials in the Bush Administration. "A lot of these folks don't want to get involved with government only to see all the money heading to lawyer's fees."