Death by Bureaucracy

Originally posted to sCNN – the smallChangeNewsNetwork

This clipping via Lenore Ealy’s Philanthropic Enterprise email list, originally from the Wall Street Journal, 4 April 2005, by Heather Higgins:

With the spirit of Sarbanes-Oxley ever in the air, the Senate Finance Committee will hold a hearing tomorrow on the issue of financial abuses by nonprofits, and will consider draft proposals that would inflict broad new reporting and regulatory requirements on every charity operating in the U.S. This action — which can only be described as overkill — is in response to purported abuses discovered in the tax returns of a handful of philanthropic bodies, mainly involving self-dealing and excessive compensation.

The committee’s own proposal would impose burdens that are well beyond the capabilities of most nonprofits. Of 65,000 foundations, only 46, or 0.06%, have assets over $1 billion. Most have assets under $50 million. And of the roughly 1.4 million public charities, about 94% have annual revenue of $1 million or less; 98% have revenue of less than $5 million. Most are run with small staffs and tight budgets.

These smaller nonprofits are where people with problems often find help, where research and funding begins for everything from AIDS to charter schools, where local communities organize to keep their streets beautiful, protect the environment, return the homeless to productive society and support civic institutions. This is the sector that most often preserves the texture and strength of our communities — and that would be most hurt by many of the current proposals.

As the cost of maintaining tax-exempt non-profit status rises, the net benefit of the tax exemption itself declines. The assumption at the heart of sCNN is that the cost of reporting is already too high for some of the smallest, most active community initiatives and initiators, meaning that we are generally better off if we give directly to these activists.

If we forego the tax-exemption, we also escape the admin costs and the rest of the bureaucracy that does much to kill good works. This doesn’t mean reporting isn’t important, it means in needs to be relevant and useful, like the kind of reporting that gets done in a weblog. It’s a lot more impressive and meaningful to me if somebody is blogging an initiative daily or weekly than if they are filing the right government forms quarterly and annually.

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