Tuesday, July 21, 2009

California budget - foundation dependent?

(photo by Jeff Keen, Flickr, Creative Commons)

I live in California. In the 19 years I've lived here the state has been late in approving a budget more times than not. Developing a state budget is a game - literally - you can play it here on the LA Times's website. Our Governor is offering up signed state-owned tchotchkes at a "California Garage Sale" to raise money. Of course, it is not a game. California is the world's 10th largest economy. Lives depend on the state budget.

And in the last year we set a new (low) standard in budgeting practices. The State has been issuing IOUs since July 1. Only last night (July 20) was a budget agreement reached. That is better than nothing - but this sentence in a New York Times story about the agreement nearly made me spit out my coffee this morning:
"While the state’s health insurance program for children, Healthy Families, remains, it was cut by $144 million, meaning thousands of children will probably be on a waiting list for the program unless a private foundation makes up the balance, as the Democratic-controlled Legislature hopes. (my emphasis added)"
How can we expect to run a state on hope? For all the important opportunities there are for public problem solvers, private corporations, philanthropists and social entrepreneurs to work together to address our shared challenges, what kind of democracy depends on philanthropy? The irony here is too rich - good foundation program officers will redline a nonprofit applicant's budget if they include a "line item for hope" - and now the state is using a placeholder marked "foundations" to provide health insurance to children?

I was planning on posting a piece today about the dynamics between philanthropy and the press - a topic I've written about before and which has been getting more and more attention since my-admittedly-beloved The New York Times announced it had discussed seeking foundation-sponsorship for certain pieces. This is a practice already in place at The Atlantic and The Washington Monthly, and as we increasingly rely on independent investigative journalism outfits such as ProPublica and the Center for Investigative Reporting - and maybe new models like spot.us - it will likely continue. Given how often Nicholas Kristof and Tom Friedman of the NY Times now write about NGOs it seemed clear that philanthropic communications officers (if not yet philanthropic dollars) had already gotten through to the press. Needless to say, I have lots of questions about the press and philanthropy.

But state government budgeting based on hoped-for philanthropic support? That should be raising lots of questions from lots of people.


Pete said...


It’s no wonder the statement you quote from the New York Times nearly made you spit out your coffee.

The truth is, legislators asked foundations to fill in the gap in Healthy Families weeks ago. Dr. Ross of The California Endowment, for one example, shared a story about a legislator asking the foundation to contribute $30 million at the recent National Conference on Volunteering and Service, now four weeks past. The Endowment declined, and so have other foundations, it seems, so far.

Children’s health advocates have been working like mad for the past two months to try to find resources to prevent an estimated 800,000 children from being kicked off insurance or denied enrollment (about half the kids would suffer each fate, roughly). In recent weeks, the focus has been on seeking contributions from private health plans and First 5, the quasi-government entities at the state and county levels that administer tobacco tax funds to improve health and education for children from 0 to age 5.

Advocates are stunned, though, by the estimated final gap. The cut for Healthy Families ballooned over the weekend, from roughly $90 million to $140 million. We can only hope this doesn't discourage First 5, the health plans, and others from doing what they can.

All this precisely at the time when working families most need the help, when the federal government would put in $2 for every $1 California can muster, when we need to preserve employment wherever we can, and when we can be certain that the costs over time will far outweigh the near-term savings.

This situation only more dramatically makes the point we’ve all known about philanthropy all along – that there is no way private philanthropy can pick up the slack when government retreats.

And what’s getting less notice than it should, perhaps, is that foundations are retreating, too. Endowment orthodoxy (negative connotations intended) is pushing many funders to cut their funding, just at the time when (1) we may have better odds of achieving things like universal health coverage than we’ve had in two generations or more, and (2) when people and programs they have invested in for many years most need the help. In many cases, to me this is the inverse of the “fallacy of sunk costs”; rather than throwing good money after bad, increased investment has greater odds of making the original investment provide more returns in the future. It’s risky, but to cut now seems even riskier, in that it makes failure far more likely. It does, though, help preserve asset value. What should we make of that kind of trade-off?

I am confident we'll get some useful form of comprehensive health reform, this year, at the federal level. Many Californians, however, may have to watch it go on by, though, if it comes with a matching funds requirement we can't meet.

[Full disclosure: I work for United Ways of California, and pursuing health coverage for all California children is our top policy priority.]

Anonymous said...

Hi Lucy,

I'm shocked just as you are that the state government is playing a game of chicken with philanthropy using children's health as it's stakes, but the reality is that all good democracies depend on philanthropy. Under the Bush administration, part of the rationale for government tax cuts which decreases the amount of funding for federal programs, is that the loss of funding will be made up for by increased giving. While one can always argue the merits of policy, the example illustrates the necessary dependency of the government to expect philanthropy to step in when it can't, what is often known in the literature as three failures theory (market, then government, then philanthropy).

In the case with the CA budget, it seems to me unfair to say that the government somehow dropped the ball by hoping that philanthropy will pick up the bill. Government officials had to do what they did to get the budget passed and hoped for things out of their control.

Perhaps alternatively the government could have taken away the charitable tax deduction or increased taxes so that instead of hoping it could unilaterally make up the deficit and not be dependent on philanthropy. But in a democracy, it seems more important to have a diverse set of actors and a healthy civil society than to have the expectation that government has no expectation for philanthropy.

Lucy Bernholz said...

I couldn't agree less. Talk about the difference between theory and practice. Of course, philanthropy and public sector intersect.

As I have argued and pointed out in writing and books for years - philanthropy is, in some ways, just another "regulated industry." Formal institutions of philanthropy (as opposed to human kindness) depend on public policy for their very existence.

That said, the state exerts very little control over what happens with philanthropic funds. In theory and practice this is one of the most-cherished and most-contested elements of philanthropy - should the public sector exert more influence or guidance over where philanthropic dollars go. Its a worthwhile question for policy makers (and philosophers).

However, at this moment in time - and this is the moment in which CA is trying to pass a budget - the gov't does not do so. So to line item in "foundation money for children's health" is not just playing chicken, it is a flat out wish - they could just as well have put in "$144 million will fall from heaven." I don't know about you, but as a CA taxpayer I'd rather see some more reality-based budgeting practices. Not only do I think CA legislators dropped the ball by claiming foundation funding for this, I think they dropped it, kicked it down the street, and hope no one really goes looking for it.

As for tax policies that claim philanthropy will fill gaps, this seems to me to be reality-challenged. All philanthropic dollars - if they could be aggregated and organized - don't amount to meaningful line items in most state budgets. And - as you should know - philanthropic dollars are not aggregated and organized.

If public officials want philanthropic dollars to fill line items in their state budgets they need state tax policy that would require such application. States don't do that, largely because theorists and philosophers and vested interests tell them that the minute the freedom of choice that is so inherent to America's robust philanthropic giving traditions is limited, the giving will dry up. This a debate that Rob Reich and others, as well as recent articles in Commentary (http://www.commentarymagazine.com/viewarticle.cfm/the-war-on-philanthropy-15190) and from the Philanthropic Roundtable (http://lawprofessors.typepad.com/nonprofit/2009/07/new-study-from-the-philanthropy-roundtable-defends-the-limited-relationship-between-philanthropy-and.html) are discussing.

The fact is, this is not the policy now. To develop a line item on a wing and a prayer is at best "wishful governing." I actually think its something worse.

BTW, this post was picked up in GiveandTake - here - http://philanthropy.com/giveandtake/article/1136/california-looks-to-foundations-to-fill-budget-gaps. Note this sentence from a senior executive at the California Endowment:

"Daniel Zingale, senior vice president of the California Endowment, a foundation in Los Angeles, agrees. In a Chronicle article about how state budget gaps are hurting charity efforts, Mr. Zingale says, “The first response for some of the foundations is to try to backfill the gutting of the safety net.” But with California’s massive deficit, “we couldn’t sustain that safety net for more than a few minutes.”

Anonymous said...

So here's a question that's worthwhile to consider: Should the CA state government levy a tax on philanthropic institutions to make up for the $144 million shortfall instead of asking such institutions to chip in? Your argument that philanthropic dollars are disaggregated and unorganized suggests that the state would spend those dollars more effectively by virtue of being more aggregated and organized. Taken to its logical conclusion, one might wonder why philanthropy exists at all.

I'm not sure what the proper roles of the different sectors are, which is why I think it's critically important that we define them. Is this an example of state failure? Most definitely. What will philanthropists and other private actors do about it? I have no idea - but I'm curious to find out.

Kyle Reis said...

Dear Lucy - This is a great post. You should send this to the Chronicle or another industry paper as well. The "unless a private foundation makes up the balance" comment is sad at minimum and very disturbing for our sector on other levels. You nailed the budgeting on hope sentiment.

Best, Kyle

Lucy Bernholz said...

Why do you assume the state should tax philanthropy/foundations for this? If raising revenue is the way to go the state could tax lots of things besides (or in addition to philanthropy). I think you are melding possible public policy strategies that don't inherently have anything to do with each other (revenue raising, role of philanthropy, control of philanthropy, expense cutting, public priority setting)

All of which takes us away from the idea that a public entity would even profess to backfill its budget with funds it currently has no ability to influence, back to my "money from heaven" comment.


Lucy Bernholz said...

I suppose this counts as "comment stealing" but I had to go grab this comment from Clara Miller on the GiveandTake post about this and re-use it here. Attribution accounted for, here is the link

and here is Clara's comment:

"Puhleeze and oh fer heaven’s sakes. Remember when California had the best (OK, NY and California were battling it out for the best) public school system in the (gulp) world? Guess the current residents are too young to benefit, ‘cause a little basic arithmetic would help now. As Patty Stonesifer, ex-President of the Bill and Melinda Gates Foundation (by far the largest U.S. foundation and a great supporter of public education and health services here and around the world) once said during an interview with Independent Sector President Diana Aviv, “if you take the Gates Foundation endowment (not annual giving—the whole, multi-billion dollar tamale), throw in all the money Warren Buffet is expected to contribute and then add a couple of large regional foundations endowments for good measure, we’d have…well…maybe 2/3 to 3/4 of one year of California’s public school budget…” One year of K-12 public school! I can only imagine what the public health, hospitals, indigent and uninsured and similar figures would look like. The cookie monster: gulp, burp…hmmm…what’s for dinner? i.e., going to fund medical, educational and—well—just good ol’ bridges and tunnels public services next year??? hmmmmm. Better get out those Voodoo economics books George Bush the First used to talk about! What should we do? Get our public citizen butts up to Sacramento, Albany, Springfield, Boise, Talahassee and all the rest and start educating our public officials and ourselves. Not to mention, Washington, D.C. Oh, and it’s worth mentioning we also should read up on our Walt Kelly/Pogo wisdom: ‘We have met the enemy and they is us.”"

Pete Manzo said...

I hesitate to jump in again, but … in case it wasn’t clear, I would side with Lucy, that it is fantastical thinking for legislators to expect private philanthropy to ride to the rescue, for all the reasons Lucy makes and that Clara mentions in her comment. I don’t think they should be taxed, either, for this purpose (California still has other options, there also is a very long list of other sources who really should be contributing more than they are, etc.)

Here in California, we may see how quickly many millions of dollars in private philanthropic achievements can be wiped out. So while foundations don’t have the scale to fill gaps in state budgets, they really need to pay close attention to what state governments are doing, and try to influence it where possible. Declining to participate in the scrum may be the cautious approach legally, and it even may be the right one for a particular foundation philosophically, but there should be no doubt about the risks that they run by staying on the sidelines.

The second thing is funders should carefully consider the merits of pushing for longer term change in the policy environment. What is it that makes deep cuts to programs like health insurance for children the preferred response? California had other options; legislators could have cut other things, and could have tried to raise revenue to fill the gap. They did not, largely for structural reasons (supermajority requirements) and political (poor children do not make campaign contributions and their parents aren’t a strong voting block). When a foundation thinks about how to advance a particular issue, such as health for kids 0-5, for example, concerns about governance reform can seem far afield from that strategic focus. The current California budget debacle shows how closely the fates of low income children are to the messy world of politics.

To their credit, funders like The California Endowment and The David and Lucile Packard Foundation have been working the past two years to try to address the larger governance reform questions, through California Forward (in my view, the best hope for lasting solutions to these problems). The change is coming – I’m an optimist – but it just hasn’t come in time. It’s likely to be a couple more years in the offing, too.

Lucy Bernholz said...

Thank you for chiming in - again and again and more. I think you are both asking the right questions and pointing out the many options that have not been pursued by the CA legislature.

All of this leads us to look at bigger pictures, including the role that foundations can and could play in addressing the super majority/political campaign contribution issues that play out in every budget issue. This is underway in part through discussions about re-writing the State constitution, an idea with some philanthropic support.

The larger point you make is one I agree with - "So while foundations don’t have the scale to fill gaps in state budgets, they really need to pay close attention to what state governments are doing, and try to influence it where possible." Foundations exist because of policy, the issues they seek to address are shaped by public policy and dollars, and their current toolbox for developing startegies and framing problems (which may be more creative than usually deployed) is largely shaped by how the public - voters, dollars, taxes, media - frame issues. While it has become vogue for philanthropy to talk about its relationship to/interest in/ market-based solutions and/or market failures, the truth is the problems are created by, framed by, and will only be solved by active participation from all sectors.

Any claim to the sidelines is - IMHO - probably a claim to irrelevance.

Anonymous said...

Our leaders in Washington must seriously consider new and innovative policies that promote a better, more confident, prosperous, and secure America in the 21st century. One of the things I think we can do to help make that happen is support American businesses and the U.S. Chamber of Commerce (http://bit.ly/oanAT). They're doing things to reach out and show people that they can get involved, too.

Eric Gifford said...

In response to this comment: "For all the important opportunities there are for public problem solvers, private corporations, philanthropists and social entrepreneurs to work together to address our shared challenges, what kind of democracy depends on philanthropy?" I would say what kind of people depend on the government to do their charitable giving for them or direct where their charitable donations go? As a student of philanthropy, and as proponents of philanthropy, we know that there are huge benefits for those who give. See here: http://magazine.byu.edu/?act=view&a=2441.

I would agree that it may be an easy out for legislators to cut things just hoping that somebody will pick it up, but the philosophy that we need the government to direct our charitable efforts is extremely dangerous.


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