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Tax bill could cause ‘dip’ in charitable donations

Copyright © 2018 Albuquerque Journal

Like most nonprofit leaders, Tony McCarty has heard the “horror stories” of how groups like his around the country could face a drastic drop in charitable donations. But the executive director of Kitchen Angels, which prepares and delivers meals to Santa Feans who cannot leave their homes due to medical challenges, says he’s remaining optimistic.

“We’re just sitting here with our fingers crossed and doing everything we can to bring in the funds to bring to our clients,” said McCarty.

Patrick Carlos prepares turkey for meals that will be distributed by Santa Fe’s Kitchen Angels. The charity’s executive director has his “fingers crossed” over tax changes expected to reduce charitable giving to nonprofits. (Eddie Moore/Albuquerque Journal)

Local nonprofits like Kitchen Angels surveyed over the past week are trying to stay positive amid national concerns about the impact of the tax bill that President Donald Trump signed into law before the New Year.

One provision that, for middle-class taxpayers in particular, should simplify tax returns and in many cases provide a tax break also reduces the incentive to give to charities.

The new tax law raises the standard deduction on federal tax returns. For 2017, taxpayers can use the standard deduction to subtract a pre-set amount – $6,350 for single filers and $12,700 for those filing jointly – from earnings before the income tax is applied. The new law raises the standard deduction dramatically to $12,000 for single filers and $24,000 for joint filers.

That means fewer taxpayers will itemize deductions instead of taking the standard deduction – there’s no reason to itemize tax-deductible items like local tax payments, allowable medical expenses, mortgage interest and charitable donations if they amount to less than the standard deduction.

The fear among nonprofits is that the change will cause a decline in tax-deductible charitable giving across the country and make nonprofits more reliant than ever on wealthy or corporate donors.

At Kitchen Angels, McCarty said individual donors have a “huge impact” on his operation, which serves 400 clients annually. More than half of the nonprofit’s total budget comes from individual contributions – many of them small. McCarty estimated the average gift to be between $50-$100. Donations in the average range can provide Kitchen Angels’ clients with one to two weeks worth of meals.

What’s McCarty’s plan for curbing any potential downturn in donations?

“Hunkering down and being as efficient as you can,” he said.

From left, Linda Fogle, Patrick Carlos and Barbara Belding work on a turkey meal for shut-ins at Kitchen Angels on Siler Road. The nonprofit’s leadership hopes the new tax law reducing the incentive for charitable giving won’t affect its donor base. (Eddie Moore/Albuquerque Journal)

Walking through the nonprofit’s growing facility on Siler Road earlier this week, McCarty noted a recent kitchen renovation. The project, paid for by a capital fundraising campaign last year and opened in November, includes new flooring, new ovens, a 40-gallon steam kettle that allows cooks to create stock from leftover kitchen trimmings, and a larger walk-in freezer that stores food for longer periods of time.

The new additions ensure less waste and less energy use, which saves dollars. “Hopefully, we’ll be ready for whatever comes,” said McCarty.

Even before the tax bill passed Congress and was signed by the president in late December, organizations nationwide were predicting that doubling of the standard deduction could alter donors’ giving habits.

“There’s truly no doubt in my mind that we’ll see a dip,” said Bill Smith, president and CEO of the Santa Fe Community Foundation.

He said nonprofits, particularly smaller ones, all over the state will be affected and that Santa Fe won’t be excluded despite being one of the state’s wealthiest areas. Higher-income taxpayers, who can cut big checks to charity and typically have higher deductible expenses, aren’t as likely to be affected by the increase in standard deductions.

Local groups brace for change

A report by the Tax Policy Center in November estimated that individual donations nationwide could be down between $12 billion and $20 billion in 2018 because of the reduced tax incentive.

United Way Worldwide also predicted major losses, with a December announcement that stated United Way groups nationwide face potential losses of between $256 million and $455 million, mostly because they rely on middle-class donors.

“People aren’t just writing checks solely for the tax benefit, but when they’re committed to our cause, the tax benefit is an added bonus,” said Abby Bordner, vice president of donor relations and communications for United Way Santa Fe.

She said the local organization shares the same worries as United Way Worldwide, but that the local United Way has a strong donor base she hopes will remain consistent.

“It’s hard to speculate if the new tax bill would make them think twice or decrease the amount,” said Bordner. “Because we have such loyal donors that have been consistent and Santa Fe is a small, tight-knit community … we hope that personal connection or commitment would motivate them.”

The nonprofits that could be most affected by the tax law change are those that rely particularly on small donations under $100, according to Smith.

Dixon’s Embudo Valley Library and Community Center, a nonprofit public library that sees nearly 20,000 visitors annually, receives only about 15 percent of its annual budget from the county and state. That means it relies heavily on local donors and foundation grants for everyday operations.

Director Felicity Fonseca says both of those revenue steams could be compromised by the tax bill, noting that foundations that support the library also rely on giving by individuals.

“We’re worried about it,” said Fonesca of the bill. “We don’t know what it’ll mean for us and our future.”

A dip in the budget, which is only about $130,000, with 32 percent coming directly from local donors, would affect staff, programming and library hours.

Fonesca added that the library recently started an electronic newsletter in hopes to better inform the community about what it has to offer and to counteract potential funding problems.

‘Second thoughts?’

A Santa Fe group bracing for a potential financial impact is Gerard’s House, a counseling organization that works with kids, teens and adults who have lost family members.

Yasmin Martinez, 21, picks up her 11-month-old son Diego after a session at Gerard’s House, which provides grief counseling. Martinez lost her 3-year-old sister, Yahaira Arianna Rodriguez, in 2015. Gerard’s House, like many local charities, relies on individual donors who now have less incentive to make charitable contributions under the new federal tax law. (Eddie Moore/Albuquerque Journal)

For the first time last year, Gerard’s House organized a challenge grant, in which a group of large donors agreed to match individual donations up to $20,000. The campaign raised $37,000, for a total of $57,000. This year, executive director Katrina Koehler said Gerard’s House is working on a program allowing businesses to participate. With the individual tax incentive decreasing, business owners may be interested in a corporate write-off instead.

Koehler acknowledged concerns for the future because of the tax bill and the “second thoughts” it may cause among donors. About 40 percent of Gerard’s House’s annual budget comes from individuals and the average gift from the 200 donors who gave less than $1,000 in 2017 – about 30 gave more than that – was about $85.

Gerard’s House has waiting lists for its “Nuestra Jornada” grief support groups in local schools, highlighting the need for continued fundraising so that more support groups can be created. But like McCarty at Kitchen Angels, Koehler is keeping a positive attitude about the tax changes.

“I’m sure it’ll be an issue for people; people will have to make a decision and we understand that, but we also understand people have big hearts,” she said.

Donations aren’t going to “dry up” completely, said the Community Foundation’s Smith, because people of all financial backgrounds give for more important reasons than a tax write-off.

But, he said, there is now a heightened need to press the importance of the “stories” of the community’s charitable organizations and what contributions can do to benefit them, he said.

“This is a situation for all of us to pay attention to and respond to,” said Smith.

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