Don’t Forget the Human Infrastructure

No one knows how deep or prolonged this recession will be but each new batch of figures is scarier than the last.

For this reason, President-elect Obama has decided to take bold action to prevent further damage and revive the economy with a very large fiscal stimulus package—up to $1 trillion over two years. The list of priorities shows that everything is on the table: tax cuts, aid to state governments, and infrastructure—roads, bridges, schools—plus energy efficiency, broadband access and health-information technology.

But there is one big sector that got left off the list: human infrastructure—in the form of investments in the nonprofit sector. Investing just 10 percent of the stimulus, or up to $100 billion, in nonprofits is very important, especially since they are also being hit by these hard economic times. By including this sector we can take advantage of a huge network of institutions that work hard every day to improve the welfare of communities and individuals, that will spend the money quickly, that have the capacity to spread the dollars widely, and that in the absence of such help will need to shrink and thus become another drag on the economy.

The nonprofit sector in the U.S. is relatively large and diverse. In 2006, it received almost $1 trillion in revenue and spent or gave away almost all of this. It employs 10 percent of the work force and has grown rapidly in recent years. It includes a wide diversity of organizations from very small, locally-based soup kitchens or mentoring programs to large universities, hospitals, and social service groups like the Red Cross. Unlike the household sector it does virtually no saving and thus any funds provided to this sector will be fully spent and spent in a way that the citizens who voluntarily support such efforts approve. And unlike spending on new infrastructure projects, most of the money will move into the economy very rapidly and employ people with a broad range of skills – skills that go far beyond those needed to repair a highway or create cleaner energy. Finally, without such assistance this sector will shrink, adding to the ranks of the unemployed. Like state governments, this sector must balance its budgets and since it is likely to see a sharp drop in donations as the result of both the recession, and the decline in stock prices or other asset values, it will be forced to cut back thereby adding an additional downward pull on the economy.

How might an effort to involve this sector be implemented? To keep it simple, one option would be to designate all nonreligious charitable organizations, so-called “public charities” as eligible, to earmark a portion of the stimulus package (say 10 to 20 percent) for this purpose, and to distribute the funds in proportion to the amount each organization reported to the IRS for the prior year. A portion of the funds could also be set aside for the faith-based organizations that provide social services, and allocated by the federal agencies that have been handling this program in the current administration. These organizations need to be treated separately because they are not required to report to the IRS and because it would not be appropriate for taxpayer dollars to be spent on religious activities as opposed to the social service work such organizations often do and do well. It would also be possible to have these same offices handle grants to nonreligious organizations but if we want to get the dollars out quickly and with a minimum of bureaucracy, a simpler option is preferable. It doesn’t get the government in the business of picking and choosing which nonprofits to support, and it still leaves 80 to 90 percent of the package for such conventional items as tax rebates, assistance to state and local governments, extensions of unemployment insurance, food stamps, and infrastructure projects of all kinds.

Who would get the funds? The largest category of recipients (about one third) would be human service organizations that provide job training, legal aid, housing and disaster assistance, youth development, and food distribution. Other nonprofits that would receive substantial help include educational, environmental, and health organizations. To prevent some of the very large nonprofits in these sectors from snagging the lion’s share of any assistance, it would be wise to allocate the funds proportional to the size of the organization as measured by its revenues in a base year but to put a cap on the maximum amount to be received by any one organization.

For this idea to work, the extra funding would need to be temporary, the definition of eligibility refined, and a mechanism established for monitoring the program to insure that the funds are not misused (for example, squired away in endowments or used to support organizations with no track record of accomplishments or good management). Debates about whether the Metropolitan Opera needs more than Aunt Martha’s soup kitchen because it is more richly supported by private donors, and what portion of the funds should go to religious organizations can be expected. But in the end it would be unwise to leave this sector out of any initiative to restore the health of the economy.

Nonprofit organizations are a rapidly growing and important sector of the economy. Equally important, they provide opportunities for those who wish to contribute more to society to combine their idealistic aspirations with a chance to make a living, improve communities, and work with others to help the homeless, save the environment, deepen or broaden understanding of science and art, educate the young, and find new cures for disease. The work of the nonprofit sector is society’s “soft infrastructure.” It needs to be preserved as much if not more than the hard infrastructure that is currently getting so much attention.