6/7 A Civil Society - POLICY SOLUTIONS - COOLING THE CENTER

Civil Society

Apr 19

POLICY SOLUTIONS

The good news is that while social capital as society-wide trust and confidence in America’s institutions is at record lows, this is not to be equated with despair. Substantial majorities of Americans believe the situation can improve. 84 percent believe trust in the federal government can be improved, and 86 percent that the confidence Americans have in each other can also be improved.

The direction of policy solutions is therefore clear, even if complex in the delivery: to rebuild civil society starting with its high levels of trust at the periphery, and to ensure that federal policy involvement does not metastasize civil society further.

4.1 DE-ESCALATING THE ARMS RACE

What is necessary is to de-escalate the arms race around political and philanthropic funding. These are funds and activity that would be better spend focused on community level issues, divorced from federal or national policy objectives. This is difficult. As with any arms race it takes the courage of one side to step down, and yet investing in the periphery is critical if we are to build society-wide trust.

It is beyond the scope of this paper to consider political finance reform, no matter how urgently it is needed, on account of the decades of failure to successfully downgrade the colossal expenses involved in American political campaigning and lobbying.

Additionally, we accept that the large scale of the federal government overreach is unlikely to be turned around overnight. But because federal government can only play a very limited role in the creation of social capital we limit these proposals to refining tax policy related to nonprofit and philanthropic giving and expanding vouchers for diversifying service delivery for federal welfare, health and human services programs.

4.2 SMALL NONPROFITS

But first a note on nonprofits. Of America’s 1.3m nonprofits, 9.7 percent are private foundations. Of the remainder, 92 percent operate on a budget of less than $1million. According to the National Council of Nonprofits, human services and public and society benefit/community improvement nonprofits account for 34 percent of all nonprofits but only receive 19 percent of charitable donations. Higher Education nonprofits account for 5 percent of all nonprofits and yet received close to 11 percent of all charitable donations made in 2022. This charitable mismatch is part of a centralization problem that supercharges the center and depletes social capital at the periphery.

Small, independent, community-based nonprofits are however the lifeblood of local charity and social capital building. They are usually founded by an entrepreneurial figure, often motivated by faith, who responds to a local problem, draws in some volunteers, and then finds they are managing a nonprofit. Such groups often defy
the wisdom of central policy and are ground in “common sense”. Such groups rehabilitate drug addicts to a substance-free future, help homeless people into work and housing, reintegrate biological families separated by the care system (by equipping parents with budgeting, meal prep, and parenting skills), interrupt the conveyor belt from educational failure to the criminal justice system, or provide care-leavers with alternative family through youth clubs and mentoring on ageing out.

These groups are usually “amateur”, learn-as-they-go, and made up of highly motivated individuals. As Chris Drayson et al write in the University of Cambridge Journal of Social Policy, drawing from the experience of groups in the United Kingdom, such groups are often effective because they are “embedded in local geographic communities, informal familial organisational cultures and [have] a person-centred ethic of care”.69 While they will often have clear governance structures and apply high professional standards in their work, they also benefit from being flexible and can-do, resulting in “greater institutional sensitivity to and knowledge about service users’ needs”.

Such groups are difficult to scale up. Their vision is often caught up in the founder, and the managerial capacity needed to expand in staff or geography can feel counterproductive to the organizational culture that has been successful to-date. This is because small nonprofits are characterized as having “high levels of trust”, “dense local networks”, where “everyone knows one another.” It is this intimacy of relationships, its proximity and human scale, that contributes to a nonprofit’s effectiveness. Service users of such work may say how this work changed their lives, turned their lives around, or even saved them—and yet a grantee coming in to define metrics for how a coffee and a conversation in a converted strip mall managed to do this for a homeless person will remain perplexed as to how. It is difficult to put “love” on a spreadsheet, or to codify it for others to follow the recipe.

Grant-making foundations should be cautioned against overly professionalizing or standardizing such groups. Similarly, small independent community groups should also be wary of receiving too much grant or public money that comes with deadening conditions attached.

The spark that makes these groups effective is their voluntary and independent nature, with funds and resources drawn heavily from local networks.

While these groups are often far more effective than their public sector counterparts, or large-scale national nonprofits focused on D.C., it is precisely these sorts of groups that miss out from funding that otherwise goes to the center.

This is for a number of reasons. First, with budgets at often well below $1m, they can be too time-consuming for large foundations to consider funding, especially if they have tens of millions of dollars that have to be cleared out by year’s end. It is easier to give to large, national scale nonprofits, and less hazardous on the reputation of the foundation to give to arts, museums, universities, and advocacy campaigns, than to anything that could be considered high-risk, like abstinence-based addiction recovery.

Second, it can often be beyond the wheelhouse or time available for staff or volunteers at a nonprofit to begin foundation fundraising. The urgency and proximity of care makes it difficult to spend the hours necessary in identifying and applying to foundations that are unlikely to fund a new group, beyond the familiar group of grantees they already fund.

Thirdly, such groups take a view of the human condition that can often be at odds with fashionable thinking among grant makers. For example, if a small nonprofit works on the basis that substance addiction, personal debt, or a victim mentality are not helpful for the individual they are working with, they will help them to manage or rehabilitate from their addiction, assist with personal debt through work and budgeting, and help an individual overcome victimhood through meta-cognition and goal setting. While many of these “common sense” approaches are effective, the zeitgeist for funding victimhood, systemic solutions, or judgement-free harm reduction only approaches to drug treatment leaves them in the dark.

Similarly, many such groups often locate the issues as originating in family breakdown, echoing the clarity of the HRH The Princess of Wales in her landmark speech for the Royal Foundation Early Childhood Center, when she said, “experiences such as homelessness, addiction, and poor mental heath are often grounded in a difficult childhood”. Additionally, such “common sense” approaches usually fail to satisfy the grant manager’s appetite for the “innovative”.

This is a pity, as it is such local, community groups that have the capacity to build social capital. That is because trust is so critical to the success of a nonprofit, with 78 percent of Independent Sector respondents saying that trust had to be earned if they were to give to a nonprofit. Distrust or neutral trust in nonprofits, by contrast, is caused by the perception of “an inappropriate political agenda” amongst other factors.

Philanthropy, on the other hand, earns even lower trust than nonprofits, because too “many times they focus on areas important to the wealthy philanthropist, which may not help society as a whole.” In general, people feel that nonprofits and philanthropy should not be political, or at least transparent about their affiliations or ideology, should be of benefit to people and communities locally, and should be focused on practical solutions. It is perhaps a failure to do so that means more than half of Americans (53 percent) believe it is better to bypass the nonprofit and to give directly to the individual.

4.3 POLICIES

4.3.1 State Poverty and Relief Community Chest (SPARCC) and a 501(c)3P

We have seen that philanthropy would do well to move away from investing in the center and, instead, to ensure it is working to promote and build the vitality of bottom- up, grassroots, and community-based organizations. Yet, it would be better for this grant making to be done in a less controlling manner: in other words, to not achieve a policy goal set by established experts who are usually elite-adjacent.

One measure that could help would be for policy makers to consider the creation of a new IRS code that allowed donors to specifically give to poverty fighting community groups. The IRS could designate a new “501c3P” code. This would be for those non- profits that specifically provide human services to address poverty in the community, such as homeless shelters, foodbanks, outreach to low-income elderly, foster care, women’s shelters, and disaster relief.

At state level, a “State Poverty and Relief Community Chest”, SPARCC, would then have a list of the 501c3P nonprofits that are registered in only their state.

Donors of any variety could give into the SPARCC where the funds would be distributed as a community dividend to those registered nonprofits.

In particular, billionaire donors and large foundations, could be encouraged toward a truer philanthropy that simply gives funds to the SPARCC without central control over how it is spent.

This proposal, explored, could allow for the creation of a fund that shifts philanthropic power from the center, affirms community-based solutions, sees their growth, and all at lower overheads.

This should be attractive to those foundations who struggle to dispense their 5 percent each year, or who are concerned that they are giving funds to the same known grantees.

To further encourage billionaire philanthropists to give to the SPARCC, it could come with a fractionally higher tax deduction than if they were to spend through their own grants. This would bring billionaire philanthropists in line with other smaller donors who, once they have given the gift, surrender control over how it works. This generosity of “giving away” not just of funds but also control of how they are spent has a social capital building effect. It may work to improve the level of trust the American public have in philanthropy too.

As with any new form of funding there will be dynamic effects, with individuals, recipients, and even donors gaming the system to their advantage. But the proposal allows for a light touch response, a role for the federal government, an affirmation of trust at state level, and for the irrigation of a multitude of smaller organizations in the community. The SPARCC itself need not do anything more other than to transfer funds to registered organizations, as it would with a Federal or State tax refund.

4.3.2 Expanding the existing charitable tax deduction to low-income

Additionally, as Abby McCloskey wrote in her report “Building Social Capital at Home”, half of the population has no income-tax liability, and thus does not benefit from the existing charitable tax deduction. An above-the-line deduction, would allow all households to deduct charitable giving even if they do not itemize their deductions.

This is likely to have the effect of increasing giving to local organizations addressing poverty and childhood. That’s because while wealthier households tend to donate to art- and education-related nonprofits, middle- and low-income households (currently excluded from the charitable tax deduction) are significantly more likely to give to faith- based and poverty efforts. This could be combined with the SPARCC proposal so that inclusion of those with no-income tax liability affirms giving to poverty relief programs.

4.3.3 Expanding Vouchers

There is an increased appetite for school choice vouchers, where public funds allocated to an individual for the public school system can “follow the student”, and be spent instead at private, charter, extra-curricular, or home-schooling options. This puts the power of choice in education with parents and opens up greater equality of opportunity for children of diverse backgrounds. Voucher systems that give public money in personalized budgets to individuals include the federal child care program for use in daycare for low-income families, or in helping diversify choice for those living in Section 8 housing.

Such a voucher system can be applied to a number of areas where state or federal funds are involved in the supply of public service delivery, especially in the areas of health and welfare.

Restoring the role of voluntary, charitable, and faith-based providers, as well as private, for- profit entities, in the delivery of public welfare should actively include faith-based groups.

We recommend a renewal of an Independent Voucher Commission under Congressional direction that could identify and implement an expansion of the use of vouchers to involve a diversity of suppliers in public welfare, and one that affirms the role of faith-based groups. In the same way school vouchers support a variety of educational options, vouchers for payment for welfare provision should also inspire variety of forms of service delivery that support the diversity and creativity of the voluntary sector. For example, a group may combine vouchers from different federal or state agencies to ensure holistic service provision that defies conventional siloes. Vouchers should not be conditioned on providing services in the same manner as federal or public agencies, while regulation would ensure standards of protection for vulnerable service users.

Such vouchers could be used for:

• Child care including in-family care
• Pre-school
• Family support hubs
• Foster care
• Addiction treatment • Recidivism programs • Housing
• Welfare to work

These modest policy proposals should help to build social capital at the periphery where trust remains strongest. They should also help to affirm local, mediating institutions.

Together these are attempts to pull funds and energy away from the center—that combination of federal overreach and elite wealth inequality which has done so much to corrode society-wide trust—and rebuild a vibrant civil society at the periphery.