Study Shows Effect of Cuts on Charities

Charities, which are the largest deliverers of social services in the United States, coped with President Reagan’s 1981 cuts and shifts in federal spending largely by imposing or increasing fees on those they serve, a pioneering study has found.

But the use of new or higher fees is not possible for all social-service charities, and thus many charities that serve the poor, and to a lesser extent children, have been forced to cut their programs or to reduce access to their services.

In addition, government maintained or increased financial support to charities serving the oldest Americans while cutting its spending to those serving children and youth.

These findings come from a $1-million-per-year study, begun three years ago, into the impacts of the budget cuts and spending shifts that President Reagan persuaded Congress to make in 1981.

Teams of researchers directed by Urban Institute economist Lester Salamon have, for the first time, developed a detailed picture of the interaction between government at all levels and charities in providing social services.

“What our work has demonstrated is that the nonprofit sector is far bigger and more important than the popular images suggest,” Salamon said, adding that the data show “we do not have a welfare state, but a very elaborate network of government-nonprofit partnerships.

“These findings present a fundamental challenge to the concept most of our government policy-makers have of government-provided social services,” Salamon said. “This is in no sense a new phenomenon, going back to the earliest years (of the nation), but it has not been recognized by policy-makers.”

The image the researchers developed by studying 3,400 private, voluntary organizations, such as those typically belonging to United Way, in 12 urban centers and four rural areas reveals that, contrary to widely held beliefs, charities do not rely principally on donations and for the most part serve the middle and upper classes and not the poor.

Government provides 41% of the studied charities’ funds. Fees bring in another 28%.

Together, government and fees provide nearly 3 1/2 times as much money as donations, which provide 21% of the charities’ revenue, the data show. Endowment earnings, sales of products and special fund-raising events supply the remaining 10%.

Another way to look at charities is how many of them get income from the principal sources: government, fees and donations.

The study shows that fees are charged by 70% of the social-service charities studied. More charities get at least part of their income from fees than get government money or donations, the researchers found. Salamon said this dispels the widely held notion that donations are the economic engines driving most charities.

The Urban Institute studies also suggest that social-welfare charities most dependent on federal funds are not in the major cities of the Northeast, but in the South and West, where popular support for reduced government social-services spending is strongest.

The reason, the researchers said, may be that in the older Eastern cities the infrastructure of charitable institutions, including fund raising, is stronger.

Excluding Medicare, the national health-care program for the elderly, government support of charities declined 6% from 1981 to 1982, the study found, while government support of its own social-service programs declined only 4%, the study shows.

Fewer than half of the charities studied said the poor made up 10% or more of their clients. Only 30% of the charities said half of their clients are poor.

“The (charitable) sector does not, contrary to widely held assumptions, fundamentally focus on the poor,” Salamon said.

These and other findings from three years of work were sifted through recently when the two dozen researchers gathered here to examine the implications of their findings.

Salamon said he is thinking of turning his attention next to fees and how they shape access to social services.

Interpreting the Data

Most of the researchers at the two-day gathering said they interpret the data they collected as an ominous indicator of severe future economic and social problems for America because of the way the spending cuts were made.

Much of the researchers’ concern focused on the maintenance and, in some cases, growth of support for charities serving the elderly and the cuts in programs to help children and youth.

“The agencies most heavily hit in terms of government cuts were legal services, housing and community development, employment and training, social services and multipurpose agencies that combine several purposes,” Salamon said, adding that no attempt was made to evaluate the quality of social-service programs or to determine which are effective.

“Some types of agencies did OK. There were significant increases, after adjusting for inflation, in income in the health field, mental health, arts and culture, institutional and residential care and non-hospital health care,” Salamon said, noting that hospitals were excluded from the study.

“Income maintenance is being protected for the elderly, while programs that serve minorities, women and children are being reduced,” observed Virginia Hodgkinson, executive director of the National Center for Charitable Statistics, who was an observer at the researchers’ meeting.

Hodgkinson said the “budget squeezing has been on nutrition and health care for children.”

She warned that the cuts in programs for children are “a ticking time bomb” that will have “very, very dire human results.”

Economic productivity will decline in coming years, she said, because growing numbers of children are not getting adequate nutrition, education or cultural experiences and, when they become adults, will not be able to help an infotechnic society prosper and will face serious personal problems trying to cope with the world.

New York Charities

“That’s absolutely right,” responded David Grossman, a World Bank consultant on urban management issues who studied how the Reagan cuts affected New York City charities.

“In health programs (for the poor) it is even more true,” Grossman said, explaining that his as-yet-unpublished study shows that, in New York City at least, the older individuals are the more access they have to taxpayer-financed medical care.

John Hall, a professor of public administration at Arizona State University, said local bureaucrats and charity managers can adjust to marginal ups and downs in their budgets and that in metropolitan Phoenix he found “plenty of evidence of a capacity to compensate for the government cuts.”

Reagan’s most significant impact in human services is not in marginal changes in spending, Hall said, but in “the dismantling of social policy-making.”

He said the evolution of social-policy thinking to develop new programs and better ways to build a strong society have come to an abrupt halt.

“Who is planning for the future?” Hall asked. “That’s the central issue.”

Hall urged a national Human Services Budget covering Social Security, Medicare, welfare, programs for children and the arts.

Robert Smucker, a vice president of Independent Sector, an umbrella group for major charities and their foundation and corporate supporters, urged adoption of such a budget package concept, just as most military spending is controlled in a single bill commonly known as the Pentagon Budget.

Mark Rosentraub, a University of Texas urban affairs professor who studied Dallas-Fort Worth charities, said the Reagan Administration’s increasing financial support for the oldest Americans, while cutting back the taxpayer investment in youth, will savage the economy within a decade or two.

Cutting the taxpayers’ “investment in human capital development” will make it far more difficult for Americans to compete in the world economy, Rosentraub warned.

Growing Up Impoverished

Rosentraub criticized the Urban Institute studies for not examining the long-range impact of federal budgets cuts on “the maintenance and development of human capital.”

Salamon, who said he wants to make such examinations in the future, interrupted the debate to note that the study data shows “child-serving agencies were not cut as bad” as some other charities.

Hodgkinson countered that Salamon was focusing on demand for services rather than the need for them.

“Children in poverty have risen from 17% of all children to 22%--and the base is broadening,” Hodgkinson said, noting that among American children younger than 3 nearly 28% live in poverty.

“The fact is only 14% of children eligible for Head Start get in,” she said, calling this an indication of unmet needs.

Hodgkinson said these figures are made more ominous by the fact that there are 7 million fewer Americans younger than 18 today than there were a decade ago, meaning the numbers of productive, well-adjusted people in the future will decline.