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What is the biggest threat to nonprofit missions that no one is talking about?

in
Posted: 
November 19, 2013

This question is quite timely, given increasing community needs. The Nonprofit Finance Fund’s nationwide research found that in 2012, for the first time in the history of that organization’s surveys, a majority of nonprofits reported that they could not meet the increased demands for their services. And that was before the first round of sequestration cuts and the recent federal shutdown shifted more burdens onto nonprofits and thereby foundations.

First, help your grantees see the growing external threats to their (and your) missions.

Since the Great Recession began, all levels of government have been shifting their own financial burdens onto nonprofits and foundations. They’ve done so by:

Every dollar that governments divert from nonprofit missions is a dollar that nonprofits must raise elsewhere. But the math just doesn’t add up.

According to Giving USA 2012 and Nonprofit Sector in Brief 2012, the nonprofit sector as a whole receives almost half (49.6%) of its revenue from earned income (such as tuition, payments for health care, and ticket sales). Government is the second largest source of revenue (32.2%), paying nonprofits to deliver contracted services on behalf of governments. Private philanthropy provides the third largest collective amount of funding through giving from individuals (9.6%), foundations (2%), bequests (0.9%), and corporations (0.8%).

With foundations giving two percent of the total, each foundation would have to give 16 times more every year to replace government spending. That, of course, cannot happen, yet many policymakers assume that nonprofits and foundations can magically fill the gaps. The math proves how misguided that thinking is.

You can help your grantees learn about federal, state, and local public policy developments across the country that affect nonprofits by encouraging them to take advantage of the Council of Nonprofits’ free, bi-weekly newsletter, Nonprofit Advocacy Matters, at http://www.councilofnonprofits.org/news/e-newsletters.

Second, focus on state, not federal.

The real action is in the states, not D.C. During this session of Congress, only 46 laws have been enacted, while this year state legislatures have enacted or adopted more than 39,500 laws. Consequently, to protect and advance their missions, nonprofits and foundations must invest more attention and funding to state policy matters.

To illustrate the danger, while many nonprofits and foundations have focused exclusively on federal threats to charitable giving incentives, several state legislatures quietly pursued similar limitations. Fortunately, our state associations of nonprofits and allies prevented that from happening this year in Hawai’i, Oregon, Minnesota, Kansas, and North Carolina through advocacy efforts that demonstrated to legislators how vital charitable giving is to communities.

There is safety in numbers. Encourage your grantees to join the state association of nonprofits in their state. (Your foundation can join, too, as well as provide funding that leverages your contribution to help all nonprofits in your state.)

Third, provide general operating support rather than just narrow program dollars.

Help your grantees by contributing general operating support grants that allow them to be nimble in responding to external forces and engage in policy work that threatens their (and your) missions.

Fourth, demand more.

For too long, too many attorneys for private foundations have encouraged use of outdated boilerplate language in grant award letters that scare grantees away from doing anypolicy-related work. Such overreaching language is unnecessary and inhibits the ability of nonprofits to solve root causes of problems. Review your grant award letters; if they contain language discouraging grantees from engaging in advocacy, tell your legal advisors to adjust the language like other foundations do to allow charitable nonprofits to defend against harmful policy proposals.

Fifth, give encouragement.

The grueling pace of the last five years has taken a serious toll on many nonprofit leaders. Perhaps the greatest gifts you can provide right now are moral support and encouragement to be champions for their missions by telling their stories to policymakers and the media.

Nonprofits and foundations cannot continue to ignore or avoid public policy threats that endanger their missions. Your support can help charitable nonprofits to see that advocacy is core to advancing their missions – which also helps protect and keep philanthropic resources where they belong – supporting philanthropic missions, not filling government coffers.

Nonprofits' Work to Prevent Bad Acts Is Never Done

in
Posted: 
November 11, 2013

Nonprofit leaders know that even one dollar diverted from a nonprofit's mission is too much. In an era when more than half of nonprofits surveyed reported that they didn't have resources to meet the increased demands for their services last year, individual nonprofits can't afford any fraud. And the sector as a whole can't afford the reputational damage from even the hint of fraud.

Recent headlines in The Washington Post and elsewhere cast doubt on nonprofits' stewardship of their finances. Such headlines can mislead casual readers into believing that the sector is rife with problems, when in fact it is not. Nonetheless, nonprofit leaders should renew our resolve to get to an ideal world where the number of nonprofits that are victims of fraud is down to zero.

What can we do? First, take this seriously; use the Post's article as a blaring wake-up call that bad actors can infiltrate and hurt even the best nonprofits. You cannot have an attitude that "it can't happen here," because it can happen anywhere. The nonprofit featured by the Post, the American Legacy Foundation, was created by state Attorneys General as a result of their victorious case against tobacco companies in the 1990s, and many current and former Attorneys General have served on the Foundation's board. They would be the last to countenance fraud. If it can happen to them, it can happen to you. (Full disclosure: I was a senior official in a state Attorney General's office when the American Legacy Foundation was established.)

Second, every nonprofit should pull out your existing ethics and accountability materials, discuss them with staff and board members as a refresher of your "zero tolerance" policy, and explore ways to update and improve the materials. If your nonprofit has not yet adopted an accountability program, then do so now. Programs such as Principles and Practices for Nonprofit Excellence and Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector offered by many state associations of nonprofits across the country equip nonprofits with proven practices for effective nonprofit governance. Another resource is Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations by Independent Sector. The key to success is not the particular plans as much as creating a culture of ethics; having group discussions about which program would be the best for your organization will set the right tone for a positive culture.

Third, we need to expand the work of GuideStar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator to combat the "overhead myth." The costs for accountability and ethics programs count as "overhead" that too often gets short-changed. Getting governments, foundations, and individual donors out of the mindset that administrative costs are bad and seeing them instead as an essential investment in the core infrastructure of organizations is vital to the health and protection of nonprofits and those they serve.

Also, although individual nonprofits cannot formally police other nonprofits, we all can reinforce our sector's expectation of high ethics. How? One way is to share ethics and accountability materials with colleagues in other nonprofits. It doesn't have to be an exhausting campaign; if each nonprofit board member and CEO proactively reached out to just two other organizations to share an accountability or ethics resource, that supportive act reinforces mutuality of expectations.

Now that immediate responses dispelling the Post's headline have been published and more balanced in-depth and detailed analyses reported, it's time for nonprofits to pivot to broader efforts to rid the sector of bad actors. Although the tenor of headlines are often salacious, we can still learn from the underlying data developed by The Washington Post, the Tampa Bay Times, and The New York World. They reveal harm from certain categories of individuals injuring nonprofits and the public (e.g., self-dealing investment advisors, private fundraising telemarketers draining dollars through nonprofit shells to line their personal pockets, and corrupt politicians abusing nonprofits they control to funnel public money to themselves or their families). Such bad actors must be stopped.

Nonprofit leaders and state charity regulators share similar goals here, so collaboration to protect the public and nonprofit resources is essential. Therefore, we extend our hand of support to the National Association of State Charity Officials to work together as state-level partners to develop solutions that target the bad actors preying on the public by misusing the good name of charity.

Without the public's trust and confidence, charitable nonprofits will not be able to fully deliver on their missions to serve their communities. Nonprofit board members, leaders, funders, volunteers, donors, and regulators are all in this together, so let's take proactive steps to prevent fraud and ensure that nonprofits are living up to the high standards the public expects and deserves.

Nonprofits Must Respond Swiftly to Critical News Stories

in
Posted: 
October 29, 2013

For the second time in recent months, a major newspaper has overreached to give all nonprofits a black eye by publishing an article essentially questioning the integrity of nonprofits that have been victimized by fraud or unfortunate circumstances.

On Sunday, the Washington Post’s Web site promised to take readers “inside the hidden world of thefts, scams, and phantom purchases at the nation’s nonprofits.” That came after the Center for Investigative Reporting and the Tampa Bay Times this summer declared “America’s 50 worst charities rake in nearly $1-billion for corporate fundraisers.”

Both stories show that nonprofits were victims of fraud and unethical acts by individuals, but the stories slanted the presentation to make it sound as if nonprofits were the perpetrators. Indeed, most of the organizations mentioned in the 50 worst charities series are extreme outliers, apparently set up primarily to funnel money to professional fundraisers while using names meant to evoke more established legitimate charitable organizations.

In The Washington Post story, the reporters had access to more than a million tax forms nonprofits filed over four years. They found that 1,000 nonprofits checked yes in response to a question on those returns about whether their group had suffered a “diversion of assets.”

Using that tiny percentage, the article then gave the misimpression that the nonprofit world is rife with “financial skullduggery,” when in fact it was the approximately 1,000 nonprofits themselves that were the victims of scams by for-profit vendors, employee theft, and outside investment advisers.

No matter how much we dislike the ill-informed and negative slant of pieces that appear in the press, it’s important to recognize what the public is saying about them. In both cases, people are making comments on the online stories saying they will never donate to a charity again.

Thus, we cannot sit on the sidelines silently when false or misleading statements are made about our integrity and the work we do helping people and solving problems in our local communities.

Here are four ideas every nonprofit should try to advance as they seek to educate the local and national press about how we really work:

  • Nonprofits are transparent. Nonprofits make disclosure and openness a badge of honor. The Forms 990 that were used for these and other articles are available to the public 24 hours a day, seven days a week. Most private companies don’t make nearly as much information available to the public. Many nonprofits prominently display their commitment to transparency on their Web sites by posting their federal filings for all to see.
  • Fraud can happen to anyone—even law-enforcement officials. The Post played down two key facts about the main nonprofit cited in its investigation: the American Legacy Fund was established by state attorneys general as part of the settlement of the states’ lawsuit against tobacco companies, and state attorneys general (current and former) continue to occupy many seats on the fund’s board. If the attorneys general, who know what to look for, could not prevent fraud from happening or know to intervene while it was happening, that shows that it can happen anywhere to any organization, even those with knowledgeable leaders and the best of intentions. (Full disclosure: I was a senior official in a state attorney general’s office when the Legacy Fund was established.)
  • Nonprofits’ work to prevent fraud and promote ethics is never done. All nonprofits must continue to be aggressive in promoting ethical conduct and financial transparency. The nonprofit community must earn the public’s trust every day not only by complying with the law but also by modeling and promoting integrity, transparency, and accountability.
  • Overhead costs are essential to nonprofit operations. Putting administrative control systems in place to prevent fraud (through training and deterrence) costs money, yet too often grant makers say their money can be used to pay only for “programs” without recognizing or helping to defray administrative costs essential for program delivery. Similarly, many government contracts with nonprofits prevent reimbursement of such overhead costs.

As newspapers have cut back their staffs, fewer and fewer reporters possess a deep understanding of how nonprofits work. That’s why it is essential for nonprofits to make working with the news media a regular advocacy tool to advance and protect your nonprofit’s mission. Every misleading article is an attack that makes it harder to bring in resources needed to do good work.

So no matter what your organization’s mission, reach out to a local reporter today. Show him or her not just the impact your nonprofit is making in the community but also a shining example of good governance and transparency that is a hallmark of the nonprofit community.

Letter to the Editor of the Washington Post

in
Posted: 
October 28, 2013

Dear Editor,

The Washington Post’s lead story in this Sunday’s paper, “Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits,” does an extraordinary disservice to nonprofits, the communities they serve, and the people who support them.

All the article does is punish nonprofits that have done the right thing. An examination of the disclosures of those nonprofits listed shows that most were victims of improper actions, not the perpetrators. Furthermore, it demonstrates how those nonprofits’ internal controls identified and dealt with the issues caused by others. Stories such as this undercut public trust when in fact nonprofits have been open and transparent.

Nonprofits take pride in the degree of transparency that made the data behind this article readily available. In fact, many nonprofits participate in Principles and Practices or Standards for Excellence programs administered by state associations of nonprofits to go above and beyond what is legally required. Charitable nonprofits should be commended for this transparency, not attacked for it.

What Do Government Shutdowns Mean to Nonprofits and Philanthropy?

in
Posted: 
October 15, 2013

The federal government shutdown is the latest example of maneuvers by politicians at the local, state, and federal levels that force charitable nonprofits and private philanthropy to subsidize government. Nonprofits and philanthropy need to open our eyes, analyze the mounting dangers from this transfer of government responsibilities, and rally together to stop the assaults on our missions and viability.

Indirect Maneuvers That Shift Burdens to Nonprofits and Philanthropy

The partial closure of the federal government is yet another attempt to offload public responsibilities onto private philanthropy and nonprofits. In 2008, after the Great Recession hit, politicians at all levels of government began making severe austerity cuts to reduce or eliminate government spending. Since then, they have cut $1.3 trillion in spending – but they haven’t simultaneously reduced human needs.

When politicians stop funding basic human services, education, et cetera – whether through specific program cuts, arbitrary cuts through sequestration, or the current shutdown – they shift massive burdens onto the backs of innocent charities. They seem to expect that we will always fill the gap. Yet the math doesn’t work.

According to research in Giving USA 2012 and Nonprofit Sector in Brief 2012, the nonprofit sector as a whole receives almost half (49.6%) of its revenue from earned income (such as tuition, payments for health care, and ticket sales). Government is the second largest source of revenue (32.2%), paying nonprofits to deliver contracted services on behalf of governments. Private philanthropy provides the third largest collective amount of funding through giving from individuals (9.6%), foundations (2%), bequests (0.9%), and corporations (0.8%).

Every dollar that government cuts from contracted services is a dollar that charities must raise elsewhere. Every program delivered directly by government that gets cut results in more individuals turning to nonprofits. And every government employee who loses his or her job due to cuts produces another family with increased needs – and another cost shifted from government to charities.

When cutting funding without eliminating needs, politicians are effectively walking into foundation board rooms to divert foundation giving away from the arts, civil rights, the environment, and other causes that the foundations support and reallocate those private dollars to fund public obligations for basic human services that the politicians abandoned. Philanthropy alone cannot fill the vast and growing gaps.

Direct Maneuvers That Take Resources from Nonprofits and Philanthropy

Since the onset of the Great Recession, nonprofits have seen politicians make calculated decisions to take money away from nonprofit missions. These intentional moves shove more financial burdens onto charities and philanthropy as governments:

Again, policymakers expect nonprofits and philanthropy to magically fill the gaps they create.

Dangers Lurking in the States

The dysfunction of Washington politicians has diverted attention away from significant threats to charitable nonprofits that have been erupting in states and municipalities across the country. During this session of Congress, only 41 laws have been enacted, while this year state legislatures have enacted or adopted more than 38,000 laws. The real action is in the states. To protect and advance their missions, nonprofits and philanthropy must invest more attention and funding to state policy matters.

For instance, while many nonprofits and foundations have concentrated exclusively on federal threats to charitable giving incentives, several state legislatures quietly pursued similar limitations. Fortunately, our state associations of nonprofits and allies prevented that from happening this year in Hawai’i, Oregon, Minnesota, Kansas, and North Carolinathrough advocacy efforts demonstrating to legislators that charitable giving is vital to communities.

Nonprofits and philanthropy are beginning to recognize that they cannot continue to ignore or avoid public policy threats that endanger their missions. But this realization is coming late when the threats are daunting. Charitable nonprofits across the country need support and encouragement from donors to be active advocates. Your support can help charitable nonprofits to see advocacy as core to advancing their missions – which also helps protect philanthropic resources for missions, rather than for filling government coffers.

Indeed, perhaps the best answer to the “Ask the Center” question is to ask other questions:

  • How much more can charitable nonprofits take on before America’s cultural, spiritual, and social safety nets simply collapse?
  • What can your family or community foundation do to help support nonprofit advocacy in your state?

When Government Shuts Down, the Nonprofit Community Pays

in
Posted: 
October 4, 2013

The federal government shutdown is more than just a symbol of political dysfunction. Real people are being hurt. And charitable nonprofits and foundations are unfairly being asked tosubsidize government even more than usual while the government is closed.

Community and human needs do not stop just because the federal government has stopped functioning. Indeed, the shutdown has actually increased the needs of millions of Americans. That's why when politicians shut the doors of government, charitable nonprofits struggle even more than usual to meet the needs of their constituents.

Increased Public Needs Transferred to Nonprofits

The government shutdown means there is no federal money to pay for essential programs. Many federally funded, community-based programs that provide food for infants, children, veterans, and seniors, such as WIC (Women, Infant, and Children Supplemental Nutrition) and Meals on Wheels, report having only enough resources to continue operating for a few more days. At least twenty-three Head Start programs in eleven states have already run out of money, leaving children without access to vital educational programs and their parents scrambling for options. Similarly, people who could be applying for Social Security, Medicare, Medicaid, veterans' benefits, or other essential programs -- all of which have been idled during the shutdown -- turn to charities for help.

New Needs From Furloughed Federal Employees

The government shutdown also means that almost a million federal employees across the country -- not just in Washington, D.C. -- have been ordered to stay home, as have many more people working for government contractors. Collectively, these employees and their families have seen their personal income cut by about $200 million a day. For government employees working paycheck to paycheck who need to provide for their families, charities are the first place they turn to for help.

When the government reopens, Congress may decide to pay federal employees and even beneficiaries of safety-net programs in recognition of the fact that they were innocent victims of partisan squabbling. But Congress will not make charities whole for the added costs they incurred in filling the void created when Congress closed the doors on the American people.

Higher Costs Due to Broken Policies and Practices

It has been well documented by the Urban Institute and others that governments at all levels routinely pay nonprofits late, fail to pay the full costs for the services nonprofits perform, and create many other challenges to their nonprofit partners. That broken "system" forces charitable nonprofits to turn to private funders to underwrite, subsidize, and provide bridge funding to keep operations going in the face of government policies and practices of shortchanging nonprofits and imposing wasteful costs.

These systemic problems require systemic solutions, which is why the National Council of Nonprofits has been publishing a series of solutions-oriented reports on government-nonprofit contracting reform. The latest Streamlining Report, issued the day before the federal government closed its doors, Investing for Impact: Indirect Costs Are Essential for Success, examines how governments undermine the ability of nonprofits to deliver the most effective and efficient services when they reimburse their nonprofit partners for less than reasonable indirect costs; calls on governments to pay actual indirect costs incurred by nonprofits; and offers solutions for streamlining contracting practices to the benefit of taxpayers and those receiving services. It reflects insights about indirect costs gleaned from such projects as "Real Talk About Real Costs," run by the Donors Forum in Illinois. If governments adequately compensated for the management and administrative costs actually incurred, albeit indirectly, to fulfill public contracts and grants, then nonprofit contractors would not have to turn to private philanthropy to subsidize those functions.

Subsidizing Government Due to Uninformed Policy Makers

Nonprofits regularly hear from elected officials that they should turn to private funders to backfill government spending cuts. What policy makers rarely understand is that nearly a third of the sector's revenues (32.2 percent) come from contracts and grants with governments at all levels, compared with only 2 percent from foundations. As everyone in the philanthropic sector can attest, there are not enough assets in the foundation community to provide sixteen times the current level of funding to support the work of charitable nonprofits for a year, much less indefinitely. The recent federal austerity cuts that chopped $2.2 trillion from the federal budget (including the arbitrary sequestration cuts), combined with state cuts totaling an additional $250 billion, falsely assume that nonprofits can simply go to a foundation ATM and punch out more money.

While foundations can't begin to replace the full amount of funds received from governments at all levels, they can play an important role in the long-term viability of the nonprofit sector by 1) encouraging nonprofits to accept that advocacy is core to their mission; and 2) providing general operating support. Without effective advocacy, nonprofits and philanthropic organizations will continue to be targeted by federal, state, and local governments to fill budget gaps. Nonprofits are already making amazing contributions to their communities while saving taxpayers money. Likewise, since nonprofits are already subsidizing government services -- through underfunded contracts, late payments, etc. -- general operating support is critical to allow nonprofits to invest in the necessary infrastructure to deliver their services effectively.

What the shutdown crisis serves to highlight is that when government fails the people, people depend on their local charities. Hundreds of millions of Americans come to charities to receive essential services, enhance their quality of life, and uplift their spirit of faith, innovation, and inspiration. Local communities also rely on nonprofits to be problem solvers and engines of economic development.

Why do so many Americans turn to the nonprofit community when times are tough? Because charities are innovative, efficient, and effective. Because we stick to our missions in good times and bad, in political chaos and in calm. And because our doors are always open.

Business As Usual: A Tale of Two Sectors

in
Posted: 
September 30, 2013

As the clock ticks down towards the latest two federal fiscal crises manufactured by politicians, charitable nonprofits prepare for business as usual: doing even more to serve the American people.

While business as usual in Washington focuses on partisan posturing and personal positioning, the business of serving communities doesn't stop. Indeed, the needs of the people have escalated due to the all-too-steady stream of actual and threatened government slowdowns, shutdowns, and meltdowns. That's why charitable nonprofits do all they can to keep their doors open to serve local communities across America.

Members of Congress, instead of doing their jobs of passing a budget on an informed basis, have resorted to recycling "Continuing Resolutions" extending the basic budget from prior years. That empty approach avoids making thoughtful cuts with a scalpel and has kept in place the mindless meat cleaver of random sequestration cuts.

As politicians at all levels cut services to the public throughout the Great Recession, they have -- without consultation or consideration -- transferred those governmental responsibilities onto the backs of charitable nonprofits. Consequently, data show that demand for nonprofit services has skyrocketed year after year after year after year. And all without similar increases in resources to meet the higher demand.

Making matters worse, the Nonprofit Finance Fund's State of the Sector survey found in 2013 that, for the first time, a majority of nonprofits say that they will not be able to fulfill the ever-increasing demand for services. Not because of their own action or inaction, but because when government services aren't available, even more people turn to nonprofits for some sort of help and nonprofits don't have enough resources to meet the increased needs. The recent sequestration cuts and the pending shutdown have only intensified demands being put on nonprofits.

Rising demands for services and governments' failure to pay for them are nothing new, but they have worsened in recent years. As separate national surveys from the Urban Institute and the Nonprofit Finance Fund demonstrate, governments that contract with nonprofits to provide services routinely fail to pay full costs and they continue to pay nonprofits late, both of which create serious operational issues and increase costs for nonprofits.

Over the last few decades, governments at all levels have turned to their partners in the nonprofit sector, contracting with them to deliver more and more services in the community. In times of economic uncertainty, payments on those contracts are slow to arrive. While for-profit contractors pause their work when payments from governments don't cover the costs of those services or are delayed, nonprofits don't have that luxury. A highway contractor can stop paving the highway; the provider of human services such as food, shelter, or health care cannot.

Continued budget uncertainty and another round of across-the-board cuts are not what our communities require right now. We need our elected officials to make the difficult decisions they were elected to make so government would work. After years of putting politics before policy and party over the people, it's time for federal officials to get down to the business of serving our communities.

Bryant's mandatory payment another black eye for state

in
Posted: 
July 31, 2013

When few were watching, "mandatory volunteerism" became the official state policy of Rhode Island, as declared by the governor and General Assembly last month. The oxymoronic policy, embedded in a new law, is attracting nationwide, disapproving attention for what it says about the unfavorable climate for doing business in the Ocean State.

At issue is a law mandating that a tax-exempt nonprofit, Bryant University, must "voluntarily" agree to pay the town of Smithfield hundreds of thousands of additional dollars in lieu of taxes, or else the town will be empowered to tax the university the same amount in the form of new "fees." This approach to law-making is abhorrent: a state that is willing to pass one law ... to empower one town ... to tax one particular entity ... unless that entity caves to the town's demands.

Innovative nonprofits, as well as local businesses, chambers of commerce, real estate agents, economic development councils, and others ought to be quite nervous about flight from and avoidance of Rhode Island once others see the new law and what it says about the climate for doing business in Rhode Island. If politicians are willing to empower individual municipalities to ignore longstanding law by taxing a nonprofit that is tax-exempt, then where will it stop?

The facts are not in dispute; Smithfield already reaps huge rewards by having Bryant University located within its borders. Bryant employs more than 1,000 people, plus brings in more than 3,300 students, who consume products and services that contribute more than $17 million to the Smithfield economy.

Indeed, many cities and states give away huge tax incentives to lure in new businesses that yield far less in economic benefit. 38 Studios is only one notorious example of such failed policy endeavors.

The nonprofit university also contributes more than $800,000 every year in cash and other direct and indirect services to the town. Further, like many larger nonprofit institutions, Bryant employs its own police force, which helps to relieve the burden on local law-enforcement officials, and opens its grounds and facilities to municipal events. These and other contributions by the nonprofit help make Smithfield a healthier, more engaged community.

On top of all that, the state makes payments to Smithfield and other local communities of 25 percent of the value of property tax revenues foregone due to the tax-exempt status of governments, nonprofits, and others. The state's payment of approximately $500,000 annually to Smithfield clearly covers costs for such items as fire protection allegedly at issue in the Smithfield-Bryant University "negotiations."

Unsatisfied with this windfall of millions of dollars in benefits from having a nonprofit university as a steady and reliable citizen, the town is demanding that Bryant pay an additional $300,000 or more every year. In essence, the town is saying: Even though Smithfield's budget hole is smaller because of Bryant, we think the nonprofit has money, so we demand some of it.

Bryant reportedly is considering litigation to block the new law on the grounds that it is unconstitutional. Its success before the courts may correct a shameful legislative aberration, but the damage to the state's reputation already has been done by lawmakers.

Charitable nonprofits and other businesses in the rest of the country are asking, why would we want to do business in Rhode Island where lawmakers opt for confrontation and arbitrary legislative action rather than collaboration? Elsewhere, nonprofits sit down with their public officials to address local problems, together.

Nonprofits recognize that governments at all levels are running short of resources; that is why, like Bryant University, they work to earn their tax exemptions every day by giving back to their hometowns in multiple ways. Likewise, government officials elsewhere acknowledge the many contributions of their nonprofit partners and understand that charitable resources are dedicated to the missions of the organizations of serving their communities. Those private resources are not "pots of gold" for the taking by politicians.

For the sake of the town's and state's reputation, representatives from the Smithfield would be well-served to return to the negotiating table, not with a demand for payment, but with expressions of thanks for what the university does for the community. Nonprofits are proven problem-solvers and natural partners with governments across the country. Truly working together, without outside threats and legislative overreaching, will work wonders for the town and make it an attractive destination for others to do business.

David L. Thompson is Vice President of Public Policy for the National Council of Nonprofits in Washington, D.C., whose state association and national nonprofit members are active on tax and other nonprofit policy issues in the states.

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