LeadingAge Magazine · July/August 2013 • Volume 03 • Number 04

Not-for-Profits Balance Special Status and Special Responsibility

June 28, 2013 | by Gene Mitchell

A talk with the co-chairs of the LeadingAge Not-for-Profit Leadership Cabinet on demonstrating community benefit while reaffirming the responsibilities that go along with tax-exempt privileges.

For LeadingAge and its members, not-for-profit status is as fundamental as breathing. It is the one common characteristic of all members. It is the foundation of a deeply felt moral imperative both to do good and to do well—the latter necessary to ensure that the former can sustainably continue.

The LeadingAge Not-for-Profit Leadership Cabinet, launched early in 2012, is a group of members brought together to talk through ways to ensure that the first of the LeadingAge Leadership Imperatives (“Strengthen Not-for-Profit Leadership”) is achieved.

The Not-for-Profit Leadership Cabinet’s charge was simply summarized at one of its earliest meetings:

  • First, to work toward concrete metrics and tools that we would advocate members apply regarding social accountability and legitimate aspirations to tax-exempt status.
  • Second, to deliberate on what constitutes fairness and justice. What is the duty to properly use resources, and what’s fair in terms of the distribution of the tax burden? An out-of-balance (i.e., unfair) advantage will not last.

To gain insight into the work and deliberations of the Cabinet, LeadingAge interviewed its two co-chairs: Martha Kutik, president and CEO of the Jennings Center for Older Adults, Garfield Heights, OH; and John Diffey, president and CEO of The Kendal Corporation, Kennett Square, PA.

LeadingAge: You have said that the Not-for-Profit Leadership Cabinet’s May 2013 meeting was very important. Could you summarize the most important take-aways from that meeting?

Martha Kutik: We’re a little more than halfway through our work. We accomplished a great deal at the May meeting. This cabinet, when established, really could have gone in several directions and we decided to go two ways. When we looked at existing tools for not-for-profit leaders [regarding] community benefit, we saw that there is a strong foundation of work already in existence. But having tools wasn’t enough. As we examined those tools as a group—which is very diverse geographically—we realized that there are great differences in how not-for-profits are viewed depending upon location. We understood that to serve all members large and small, those serving those in poverty and those serving folks of more means and higher income, we needed to look at the underpinnings of the conversation.

There are two subgroups in the Cabinet: one looking at the concrete tools, the second considering a more philosophical approach and discussion about not-for-profits, social accountability and community benefit. How we approach and examine the philosophy can guide our views about taxable status for not-for-profits. We are inviting thought leaders to write essays or comment on specific aspects of the not-for-profit status. When those works are available in the coming months (and perhaps ongoing into future years) they can serve as the basis of discussion for your board and community, to understand the climate and culture of your particular organization(s) and location(s). It is then that you can turn to tools that fit your circumstances, to evaluate how you’re doing and the way you’re providing community benefit.

John Diffey: Clearly, we want to encourage and help members in growing and recording the community benefit and relief of government burden they each provide. It will be difficult for LeadingAge members to sustain an effective argument for various forms of tax relief without having those measures in use.

Second, and of equal importance, we want to help members to give further thought to those times and circumstances in which it will be fairer for members to offer to make payments in lieu of taxes.

Each LeadingAge member is located in a context of a larger surrounding community. Our organizations have a responsibility, to those whom we serve, to earn and retain the tax-favored treatment without which services to them could not be sustained. At the same time, our organizations have a responsibility to be good citizens and, in some circumstances, likely should feel a responsibility to pay something toward the services provided by their respective municipalities. When, and how much, should be for each member to determine or negotiate depending on member-specific circumstances.

It appears unlikely that we will see a return of the day when the case could be argued effectively that every 501(c)(3) organization serving older people should be wholly exempt from responsibility to bear some costs of services provided. If that is an accurate observation, then it should be all the more important and obvious that we should build a public policy position based on our duty to those whom we serve, rigorous and conspicuous organizational integrity, and well-reasoned situational-fairness."

LeadingAge: The Cabinet has discussed a two-sided coin: 1) the need to cope with threats to providers’ tax-exempt status—in other words, pressure from the outside, and 2) the need for organizations to take a harder look at themselves, and the degree to which, frankly, they may not be doing enough to deserve the benefits. What is the sense of the Cabinet in what it ought to be doing along both of those lines?

Martha Kutik: We want to ensure that our members are comfortable leading these important conversations in their communities. We need to provide our leaders with the support to articulate the benefits of not-for-profits, why they have tax exemptions and why they should exist in the future.

But we didn’t want this to be just “How do we defend ourselves? How do we justify our benefit?” We wanted to ask hard questions about our social benefit. Do we really provide valuable things? Do our communities think we’re doing a good job? What has changed in the external environment that has changed perspectives on these issues?

We hope to publish thought-leader essays that are readily available on the website or in other formats, and also highlighted and discussed [in educational events and in boardrooms]. We want to focus on the important role and work of not-for-profit leaders, and support them as they continue to help to focus policy discussions in their communities on the important presence of not-for profit organizations.

LeadingAge: What is the Cabinet’s thinking about how Congress or state and local governments may alter the tax exemption rules in the future?

John Diffey: Future federal, state, and local tax policy with respect to the treatment of bona fide not-for-profit organizations is not entirely clear. Indeed it is a part of a larger conversation about tax policy in a period of restoring health and balance to the U.S. economy. LeadingAge and its members will need to be alert and vigilant if the vitality of the not-for-profit sector is to remain strong at yet another time in our economic history when it is needed most.

Most LeadingAge member organizations could not do the work they do to serve the people they do, offer the quality they do, and even survive without the historic acknowledgement of the impact of their work. Clearly almost all LeadingAge members are addressing the issues associated with aging in ways that extend useful life, add meaning, bring quality to many whose financial resources are very limited, and mitigate premature admission and readmission to expensive acute care settings. For those and other reasons, we have to stand firm together in making sure that tax-policy continues to make it possible for not-for-profit organizations to continue to serve older people well--especially noting how limited government's capacity will be to serve a rapidly growing older adult population.

LeadingAge: Some providers pay certain taxes even though they may not be required to do so. Do you have a sense for how many members do that? Is it a practice the Cabinet might encourage?

John Diffey: There are LeadingAge organizations that have always felt some responsibility to pay for services—like fire prevention and response, ambulance, and police—rendered by municipal agencies. It is the reality that LeadingAge members typically do not bring a lot of pressure on the infrastructure of municipalities. In some important ways LeadingAge members represent very desirable form of economic development. They serve people with real needs, often by virtue of income, frailty, absence of family, and insufficient existing services. Moreover, they bring jobs and additional revenue to communities as well. So most communities are happy to attract not-for-profit organizations—like those that make up LeadingAge—and make it attractive to them by waiving property and sales and use taxes altogether or by accepting payments in lieu of taxes in selected situations. It is those kinds of mutually beneficial and fair arrangements that progressive governmental entities and progressive not-for-profit providers have worked out to the benefit of all.

To borrow conceptually from the philosopher John Rawls, whose book A Theory of Justice is rooted in the idea of fairness; we want to be good citizens working together for justice and fairness. That duty requires us all to stand up for the things that enable us to serve the populations we do. At the same time, we have to make sure that, in our zeal to obtain meaningful support for the work that members do, we all make sure our requests meet a test of fairness. If we do those things, tax policy is likely to honor the work of not-for-profit organizations well into the future. If not, it is reasonable to fear that we will see on-going and costly challenges to the tax-status of not-for-profit organizations and some erosion of public trust, respect, and support.

LeadingAge: What does the Cabinet see as the most promising practices among the LeadingAge membership, in terms of demonstrating community benefit?

Martha Kutik: When you begin to gather examples, you realize the extent of the variety and diversity of existing efforts; it would be difficult to identify the most promising. It depends on who you are, where you are located, and the resources that you may or may not have at your disposal. We hope to continue to collect stories and examples and invite and encourage people to discuss what they are doing. The LeadingAge website should be viewed as the perfect venue to be used in new and different ways for this purpose.

We’re trying to recognize that we’re in 2013, that the climate has changed, but so has our ability to communicate. We can use the technology available to us to help members communicate their purpose and the ways that they demonstrate their social good. Our thought is to use a robust website presence to actually “market” social accountability, the language and thought process as well as the tools [members] can use in their own communities.

John Diffey: There are some tremendous examples of organizations doing things for the broader field of aging—such as partnering with educational institutions to provide internships and mentored credentialing in our field or taking part in significant research with respect to the practices that enable longer and more meaningful living. Another is not only serving populations that reside on campuses but increasingly providing services including referral, day care, home and community based services, and so on. Increasingly, LeadingAge is made up of providers serving broader communities and the broader field of aging in many ways.

LeadingAge members—often in concert with foundations, agencies of government, and LeadingAge itself—have pioneered in the elimination of physical restraints, developed rigorous accreditation standards and processes, established scientifically based outcome metrics for our field, built model programs for serving victims of elder abuse, brought low income housing and supportive service programs together, and so on. I know more about several of these initiatives from our own work; those have been among the things, in addition to working with those whom we serve directly, that we have cared about the most. There are a lot more examples from other settings as well, many that I don’t know about at all I am sure. The opportunities are pretty limitless, and we see colleagues doing more and more to touch the lives of those with very limited resources, and those beyond the facility-based services that LeadingAge members for the most part have operated historically.

LeadingAge: What about community benefit reporting requirements? Is the Cabinet interested in defining benchmarks, or is it more a matter of spotlighting best practices?

Martha Kutik: Some of the tools that have been developed and are in wide use are great examples of best practices. Through the LeadingAge Ethics Committee, the Catholic Health Association, and others, we have detailed audit tools, great advice on how to get started, and also advice about how to grow an organization’s efforts over time. We expect to examine these great products of previous work, perhaps update them for language and different parts of the country, and then present them as freshly polished tools on the website.

John Diffey: We know there is some really excellent material out there already, particularly from the Catholic Health Association. CHA was early in the conversation about social responsibility and measuring and reporting the impact of not-for-profits. More recently, Holleran Consulting has done a lot of good work on community benefit reporting, and has been generous in making it available broadly. There are some good templates that could be used, or that can be learned from, so how much creating of new metrics there will need to be remains to be seen. At present, it appears to be more a matter of shining a light on the best in existing bodies of work, making it crystal clear that there is a really urgent necessity to have a Community Benefit data-collection and reporting program in place, and pointing LeadingAge members to the best systems already in use or as may be refined further.

LeadingAge: What’s at stake in preserving and strengthening not-for-profit providers?

John Diffey: This is the most exciting period in our field since the early 1960s. There are probably more opportunities now for LeadingAge and its members to step in and do more as government’s capacities recede. So long as we preserve the mechanisms for our being able to serve we will be able to step up to an even greater extent—creatively and strongly.

We finally have hit upon the broad right answer in health care generally. That right answer is the alignment of population-based financial incentives with services that promote and support well-being. Until just recently, the U.S. health care system and its financial incentives have been built too much around illness-intervention. The new construct, in whatever forms it ultimately may take, brings with it an entire new set of opportunities for not-for-profit organizations in aging.

LeadingAge members know how to help older people optimize their well-being—we’ve known how to do that for years. The two additional pieces we need to set in place are (a) scientifically based outcomes-measurement systems and, based on the information from those systems, (2) the expertise to negotiate with hospital-based and insurance-based accountable care organizations so that our organizations are compensated appropriately for the added value we all will be able to demonstrate that we deliver.

This is indeed a period in which we have a remarkable opportunity to improve the well-being of people as they age, to lessen the incidence of hospital admission, to reduce health care spending in the United States, and to demonstrate to an even greater extent the leadership of not-for-profit organizations in our field. The decision to realign financial incentives has been made; scientifically based and user friendly outcomes-measurement tools now exist; and we have 6,000 not-for-profit, LeadingAge colleagues across the country with whom we can work in bringing our collective strength to bear.

In order to sustain our momentum, we will have to continue to earn and receive the tax-favored treatment that allows our organizations to borrow efficiently, operate at costs that enable those with modest incomes to gain access to services, and seek the critical philanthropic support that enables our organizations to achieve high-quality, on-going innovation, and growth in serving more people.

And, as our organizations go about earning and receiving that tax-favored treatment, we will want to make sure also that we do so in ways that take into account justice, fairness, and the broader communities in which our organizations are located. If we will do these things, so many people will benefit; and not-for-profit organizations in aging will continue to enjoy public trust, respect, and support.