Governor Proposes Changes that Affect Nonprofits

Governor Rick Snyder unveiled a bold and politically charged budget proposal last week. The proposal calls for a flat income or profit tax on businesses (in place of the MBT), taxing of pensions, elimination of the homestead provisions, and a myriad of cuts to social services and education programs and institutions. Governor Snyder’s budget also included the rolling back of decades work to make Michigan one of the nation’s most Nonprofit Friendly States. Michigan has a proud tradition of giving and volunteering:

• nearly half of all citizens volunteer,
• 85% donate financially to nonprofits,
• nearly 90% see charities as important to the quality of life in Michigan,
• 93% say the need for nonprofits is greater today than in the past, and
• nine out of ten believe that charities should retain their tax exemptions.

Over the past three years as our state’s manufacturing, retail, and government sectors have struggled and declined, only one sector was hiring and growing–the nonprofit sector.

• One in ten workers in Michigan is employed by a nonprofit.
• During the recession, employment in the nonprofit sector grew by 14%.
• Wages increased among workers in the nonprofit sector by 2.7%.

While growing, the sector has not been able to meet the overwhelming demand for services brought on by persistently high unemployment, record levels of foreclosures, stalled business investment, and tight money markets. Individual giving is especially challenging to maintain in a climate of constrained discretionary income levels. Nonprofits are also working to deal with the challenges of government where payments are late and fail to cover the full costs of services provided.

Given this growth, our state’s long tradition of public/private partnerships, the tools we’ve developed to encourage growth in individual philanthropy, and the challenges of government grants and contracts, it is difficult to understand the rationale behind the Governor’s budget choices.

In addition to the tax changes for seniors and businesses, the Governor proposed 15%+ cuts to the 15 public 4-yr. higher education institutions, over $400 per pupil cuts in K-12 funding, the budget calls for the all out elimination of the majority of the charitable incentive tools Michigan nonprofits use to support vital services to Michigan residents. They include:

• Earned income tax credit (a Michigan companion to the national credit) – $353.8 million
• Gifts: public art, radio, colleges, universities, archives, museums, libraries credit – $24.8 million
• Community foundations, $3.4 million
• Food banks and homeless shelters credit – $21 million
• College tuition and fees credit – $4.8 million
• Automobile donation credit – $100,000
• Energy efficient home improvement credit – (figures not available)
• Historic preservation credit – (figures not available)

In just the areas we can calculate right now, the nonprofit sector will be taxed a total of $54.1 millionin this budget year alone. This excludes the energy credit, preservation credit, both of which go to support areas in which nonprofits are essentially the only service providers, and also leaves out the Earned Income Tax Credit ($353.8 m) which goes to the individuals only nonprofits, in partnership with government, serve – the working poor. It also omits any local government financial challenges that will be thrust upon nonprofits as revenue sharing is cut nearly in half in the Governor’s budget. And, of course this calculation omits the loss of leveraging power nonprofits will suffer when Michigan donors realize our state tax credits as incentives to give are gone (with the exception of a few targeted for veterans and special needs children).

The Governor and members of the legislature have difficult choices to make. Michigan’s structural deficit has long been the can kicked down the road and the end of the road is here. Michigan’s nonprofit sector will be called upon to make sacrifices for our future financial security. No one should operate under the illusion that they will be spared the budget axe during this important time in our state. As a sector, we need to decide if Governor Synder’s proposal properly defines the sacrifices we want to make or if there are more sustainable and ultimately healthier choices we can make to help in Michigan’s economic recovery.


Submitted by Kyle Caldwell, president and CEO, for the Michigan Nonprofit Association.

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One Response

  1. I’m board secretary for the Friendship Shelter http://www.thefriendshipshelter.org.

    This is a zero-sum situation. Whatever goes to one state budget item has to be subtracted from another. When you make the case for more non-profit funding, you also have to make the case for where less can be spent.

    I’d go after the money recommended for the Department of Corrections ($2 billion) or tax breaks for corporations (nearly $2 billion).

    Corrections is a fairly easy target because our legislated policies in this area are very costly and mostly counter productive.

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