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Wednesday, Dec 6, 2023

Higher Costs, Tax Reform Pinch Nonprofits

Nonprofit organizations in the San Fernando Valley face new challenges as they struggle to expand their donor bases and increase fundraising. The effects of federal tax reform, local minimum wage increases and other mounting costs contribute to a growing uncertainty among many nonprofits as they plan their budgets and operations. Molly Forrest, chief executive of Reseda senior care center Los Angeles Jewish Home, the No. 20 entry on the Business Journal’s annual list of Nonprofit Organizations, is concerned the new tax law could limit the tax benefit many of her donors will receive this year, which may end up hurting contributions. “We are aggressively going to our donors to give them updated info on how this might affect them,” she said. The law, which went into effect this year, still allows for charitable deductions. But since it nearly doubled the size of the standard deduction, fewer taxpayers are likely to itemize individual deductions — and itemizing is the only way to write off charitable contributions. This means that donors looking to take advantage of the increased standard deduction may have less incentive to give as much as they previously did. One way around the problem is for nonprofits to create what are known as a donor-advised funds. Donors can make contributions to these funds and then recommend to what charities they’d like to see the money given. Contributors receive an immediate tax benefit and don’t have to itemize the donations in their filings. To ensure that Los Angeles Jewish Home can raise the $12 million needed to cover its annual expenses, the nonprofit is working to connect its benefactors with donor-advised funds and educate them on how to utilize the accounts. Because the group is in the process of renovating two of its senior living facilities, it can’t afford to see donations slip. In addition to seeing fewer contributions, Forrest is worried about the prospect of rising construction costs caused by the uncertainty surrounding new tariffs on foreign steel. “We’ve started a capital campaign to raise money to renovate buildings,” she said. “You can’t operate a building that was built in 1965 to serve people who were only living to be 70 years old. Now that people are living closer to 90, we need to update our infrastructure.” Wage worries Los Angeles’ minimum wage increases also add new costs for many of the Valley’s more than 5,600 nonprofits. Bernie LaFianza, chief financial officer for family services agency Penny Lane Centers in North Hills, the No. 6 organization on the list, said his nonprofit has raised employee pay to above the minimum wage in anticipation of the hikes. But that doesn’t mean it isn’t feeling the effects. Penny Lane receives most of its funding from public agencies, which don’t take into account the increasing staffing expenses when they distribute grants. “The funding hasn’t kept up, so it has presented a challenge for us to stay out of the red,” said LaFianza. Last year, the Business Journal reported that another nonprofit, North Hills-based New Horizons, No. 39 on the list, incurred roughly $857,000 in additional costs due to the hourly minimum wage increase from $10 to $12.50. As expenses continue rise, many nonprofits are pooling their recources and finding ways to work together when their constituencies overlap. And as government agencies increasingly require that charities provide comprehensive services in exchange for funding, they have to find partners to meet those obligations. Last month, Van Nuys senior services agency OneGeneration acquired Canoga Park-based Grand Parents as Parents to combine services and shore up their finances. “It made business sense but also mission sense,” said OneGeneratrion President Eva Goetz. Both Penny Lane and Los Angeles Jewish Home have been approached by smaller nonprofits seeking an acquisition. But each was unable to afford expanding their operations. “The environment is becoming very financial challenging — and combined with the changes wanted by funding agencies, it’s starting to push smaller nonprofits out because they don’t have the infrastructure to keep up,” LaFianza explained. Keeping it local Perhaps the biggest challenge for nonprofits in the Valley, however, is local fundraising. After the Great Recession, total contributions in L.A. County dropped from $7 billion in 2007 to $5.8 billion the following year, according to a report by the UCLA Lunskin School of Public Affairs. In 2013, contributions remained stagnant at just over $6 billion. Nonprofit leaders say that total donations, particularly in the Valley, have yet to rebound to pre-recession levels. “Of the eight areas in L.A. County, we have the largest population and most wealth but we give the least and we have the most poverty,” said Bridgette Loden, executive director of Community Foundation of the Valleys, a group that helps local nonprofits secure funding. Loden said this could be because more people are giving to national and international organizations instead of local causes. While the Valley’s nonprofit sector has struggled, total contributions in the U.S. actually increased last year. “I’ve spoken with people who have admitted to me that they really don’t know what nonprofits are here,” she said. Loden added there could also be a certain amount of donor fatigue among L.A. residents following a spate of natural disasters and high-profile bond measures aimed at addressing housing and homelessness. To combat this sentiment, nonprofits are looking for new ways to reach out to donors online and through social media. Some are also taking new approaches to annual fundraising events. Penny Lane, for example, has begun hosting a series of personalized events such as picnics instead of large banquets of golf tournaments. This not only saves the organization money but gives donors a chance to meet and spend time with the people it serves. Loden said that if local nonprofits hope to succeed in their missions, they need to continue finding ways to better engage with Valley residents. “We need a culture change in the Valley – of taking care of where we live. We need to make a more concerted effort,” she said.

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