Should the government support private non-profit organizations that are threatened by the financial crisis? The Third Sector’s distress is but one more social consequence of the ongoing global economic crisis. The contraction of global wealth that followed the sharp dip in the share prices of equities throughout the world’s stock markets has reduced the resources that are available to major donors, which has led to a reduction of the budgets of many Israeli non-profit organizations. Some of the organizations, particularly those relying on a single donor, have even shut down, following their funders’ financial collapse.
In recent years, private and public non-profit organizations have benefited from the growth of markets throughout the world. A phenomenal rise in stock prices inflated donors’ financial means, and they were able to distribute a fraction of their wealth and even become wealthier. In 2003, Israeli NGOs received about $400 million in donations from abroad and, within a short period of time, they reached a figure of approximately $800 million in 2007.[1]
The global financial crisis threatens to halt or minimize the praiseworthy activities of many private non-profit organizations, which are naturally crying out for help. In December 2008, representatives of non-profit organizations appeared before the Knesset’s Finance Committee, and demanded taxpayer support from the government. A second hearing is scheduled for the end of March 2009. Before hastily meeting their demands, the role that the Third Sector plays in the public sphere must be reviewed.
A private non-profit organization is established in order to advance a cause that its founders deem worthy and, consequently, have decided to take action and invest a considerable amount of monetary resources in order to achieve their goals. Typically, the government does not directly support non-profit organizations, but it does affect the scope of non-profit activity by offering tax benefits to donors. Thus, some private organizations enjoy a special status that allows donors to profit from tax benefits in exchange for their donations, which is intended to encourage citizens to donate to non-profit organizations that promote worthy social causes.
Naturally, the elected government is not involved in setting the non-profit organizations’ objectives, and it clearly does not engage in the allocation of funds to their various destinations. The objectives of the organizations are determined by the major donors. One may be interested in advancing Israeli democracy, while another may wish to promote dialogue between Jews and Arabs. Both are worthy causes. But ultimately, the donors determine the variety and scope of their objectives and, therefore, they do not necessarily correspond with the preferences of the Israeli public.
In fact, private non-profit organizations deviate from the natural course of the democratic game, even if they do so legitimately. Citizens (usually wealthy ones) or affluent foreigners donate to a particular cause because they are dissatisfied with the amount of resources that the government has allocated to advance it. It is also possible that they are unhappy with the methods that the government employs to address a particular issue. In a democracy that functions properly, the allocation of the government budget should represent the priorities of the people. Understandably, the will of the people — to the extent that it is represented by government policy — does not, and cannot, correspond with the wishes of each and every citizen.
Citizens who are dissatisfied with the results of the democratic process have the option of contributing their own resources in order to "rectify" the public’s priorities. A “correction” of this type may be made by donating to a non-profit organization whose activities they deem worthy. Donors to non-profit organizations that advance public causes, as defined by law, enjoy certain tax benefits, which are intended to encourage wealthy citizens to share their wealth with others. These tax benefits are limited to a certain amount (about NIS 4 million) in order to restrict the ability of wealthy individuals to draw public resources (tax benefits), in addition to the private funds (contributions) that they donate, to redirect the priorities of the society. Roughly one-tenth of Third Sector organizations enjoy the status that grants their donors tax benefits. Most non-profit organizations do not enjoy this status because it is not reasonable for the government to allocate public resources to assist citizens (or foreign donors), who wish to “rectify” the public’s priorities.
The global financial crisis must not interfere with common sense. It is unreasonable for the government to allocate taxpayers' money, which could be used to achieve goals that reflect the priorities of the public, to organizations that will use the funds according to the discretion of executives of non-profit organizations and (former) donors.
[1] Bank of Israel 2007 annual report, Statistics Appendix
Dr. Momi Dahan teaches at the Hebrew University of Jerusalem at the School of Public Policy and heads IDI's project on Inequality and Public Policy.