Last month, the Los Angeles 2020 Commission released a sobering assessment of a city in decline – anemic job growth, crushing pension obligations and reductions in social services. While stating that Los Angeles has the capacity to be a “thriving center of philanthropy,” the commission concludes that our community has failed to meet its “charitable potential.”
The question left unanswered by the commission is more complex: Whether the massive growth of publicly funded social services (and the increasing tax bill to pay for them) tends to “crowd out” charitable donations rather than empowering the non-profit private sector.
Our community is, in fact, deeply charitable. In 2012, total charitable giving ranked second in the country, at $6.7 billion, according to the Chronicle of Philanthropy. As a percentage of income given, Los Angeles ranks slightly above the national average, at about 5 percent.
But the charitable impulse wanes when government is seen as the provider of first resort to assist the needy, a point illustrated by the decline in giving as President Lyndon Johnson’s Great Society programs took hold. This trend abruptly reversed after 1996, the year Congress passed its overhaul of welfare programs.
There is also a wealth of evidence that there is a negative correlation between higher taxation and charitable giving. While extra disposable income is a main driver for increased donations, a bigger tax bill also impacts the public perception of whose job it is to provide social services. This, in turn, diminishes the critical role of non-profits – to engage citizens and act as the glue that binds a strong civil society. Instead, the public increasingly views itself as passive and frustrated consumers of inadequate social services.
The answer isn’t to cut social services to the bone in the hope that charity will fill the gap. The relevant question is whether public funding of private non-profit organizations can enable the more efficient delivery of critical social services and stimulate private giving.
Collaboration between governments and private non-profits generates multiplier effects: funds go further, produce better results and signal that an organization is worthy of charitable support. Matching grants have this impact, as do public investments that reduce a charity’s marginal cost of providing services – where charities are more efficient in delivering social services, private donations increase.
Public-private collaboration does not mean bankrolling a non-profit’s budget. The trick is to find the sweet spot where government grants stimulate, rather than discourage, private giving.