June 23, 2004

Senate Committee on Finance
Attn. Editorial and Document Section
Rm. SD-203
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Statement Submitted to Senate Finance Committee Hearings on “Charity Oversight and Reform: Keeping Bad Things from Happening to Good Charities” (6/22/04) by Jonathan A. Small, Executive Director,
Nonprofit Coordinating Committee of New York, Inc.

Dear Committee Members:

I am submitting this statement on behalf of the over 1,300 nonprofit organizations in the New York metropolitan area that are our members to urge the Committee to consider with great care the administrative burdens that would be imposed on nonprofits, most of them quite small organizations, by reform proposals you may decide to promote, and to weigh those burdens and costs against the benefits to be achieved.

The Nonprofit Coordinating Committee of New York, Inc. is an “umbrella” organization created to help nonprofit organizations of all kinds in the New York metropolitan area to perform their missions better. We provide infrastructure support through workshops, discount programs, our newsletter, our website, telephone and e-mail responses to questions, and, most importantly for your purposes, by seeking to support a legal and regulatory regime for nonprofits that is constructive in terms of protecting the public, and those served by nonprofits, by insuring transparency and accountability. We also seek to insure that those laws and regulations are not overly burdensome relative to the benefits they achieve, thus helping to avoid unnecessarily diverting funds from service to the mission to administrative costs.

The testimony you have heard in your first day of hearings focused, as it should, on trying to identify the problems—and there are problems. An equally important task for you is arriving at solutions that will be constructive. I believe that no one on the speaker list for the first day of hearings represented an organization that is devoted, as ours is, to helping nonprofits face the administrative tasks that legislation and regulations impose. My hope is that your Committee will keep that issue firmly in mind as it develops legislative proposals. “Getting the bad guys” and stopping the bad behavior is certainly important, but, if it is not done with great care and thought, the cost to those served by the nonprofit sector in terms of money diverted from serving the mission—such as feeding the homeless, providing after-school programs, offering cultural events—can easily exceed by a dramatic multiple the funds saved, directly and indirectly, by preventing bad behavior.

I believe that the first question for you should be: Are the current rules and regulations adequate to deal with the bad behavior you identify? If so, I strongly believe that increased enforcement, and publicity about that enforcement, is the cheapest and most constructive way to proceed. Please do not forget that hundreds of thousands of nonprofits are performing functions that government could or would be performing if the nonprofits were not there. Thus, the costs that would be imposed by these rules should not be ignored simply because they are not costs directly imposed on government.

To the extent you decide that existing rules and regulations and their enforcement with extensive publicity would not be adequate to address the problems you identify, you will be considering new rules and regulations to deal with those problems. As you do this, I urge you, as forcefully as politeness permits, to seek out the views of direct service providers that will be seeking to implement your proposals. For many years I was a lawyer giving nonprofits advice as to what they needed to do to comply with existing rules and regulations; having become the executive director of a small nonprofit, I am now keenly aware, as I never was before, of what it means in terms of time and cost to meet the obligations imposed by those laws and regulations. Currently, for example, a nonprofit engaged in lobbying the New York City Council is required to keep track of and report its expenses under four different sets of rules and regulations—New York City’s rules, New York State’s rules, the Federal rules imposed by the Internal Revenue Code, and the rules imposed by financial statement requirements. Are the benefits achieved by having four different sets of rules worth the cost of compliance? I sincerely doubt that the answer is “yes.”

Thus, my plea to you is to seek out input on the operational aspects of proposals you are considering and to get input from those directly affected, particularly the small nonprofits “on the ground”, to help you craft proposals that will be a net benefit in terms of their overall impact.

Thank you for your consideration of these views.

Sincerely yours,

Jonathan A. Small,

Executive Director
Nonprofit Coordinating Committee of New York, Inc.