Monday, July 21, 2008

Cville Nonprofits $7 Billion in Profits

Charlottesville, Va.—On June 23, The Daily Progress reported that city non-free market corporations have amassed $7 billion in assets (“Assets of local nonprofits top $7 billion, report says”). As of today, that report has not been released to the public and doesn’t come up on a Google search except in other articles.

“The $50,000 study was commissioned by The Community Foundation Serving Richmond and Central Virginia. Full results will be released later.

"The nonprofit sector in Virginia is alive and well," said Walter S. Robertson III, Community Foundation board chairman.” (“Study shows northern Va nonprofits spend more”, June 28, 2008,

In Charlottesville, 303 of the 499 nonprofit groups account for the $7 billion in accumulated profit and savings from not paying taxes on that profit. Webster’s new Dictionary and Thesaurus (2002) defines profit as “financial gain, the sum remaining after deducting costs.”

In Albemarle County, 128 of the 278 government corporations account for the $202 million in untaxed assets.

Why are Charlottesville nonprofits sitting on their profits instead of spending them for a good cause?

The charity corporations don’t pay corporate tax to support fire and rescue, police protection, community infrastructure, and national defense. Some nonprofits are not charities, but advocacy groups such as the Free Enterprise Forum. The advocates form a non-free market government agency—a private non-private non-corporate corporation.

Some nonprofits are private companies that compete with the private sector, except the nonprofit has the competitive advantage of not having to pay taxes. The profit is transmitted to the board members and employees as wages. The YMCA, Habitat for Humanity and Piedmont Housing Alliance are a few examples.

No one ever formed a nonprofit to make less money.

According to the study, from 1995 to 2005 nonprofit sector employment grew 34.9 percent while legitimate business employment grew 19.5 percent. The government employment grew by 11.9 percent.

We now have three sectors of the economy: public sector, private sector, and tax-exempt sector.

Virginia nonprofits employ 211,000 paid workers and 139,000 unpaid workers. Together, the 350,000-strong work force is the state’s second biggest industry after retail.

The Ethics of Unprofit

Fannie Mae and Freddie Mac have brought new attention to the problems of nonprofits. The mortgage brokers keep the profits when there’s a housing bubble. But when there’s a bust, taxpayers bail out the government agency masquerading as a private corporation.

Meanwhile the nonprofits don’t pay taxes when there’s a surplus in revenue at the end of the year. When there’s a loss, when cost is greater than revenue, the government pays the difference. Real corporations would have to go out of business. But Fannie and Freddie have become giants because they can’t fail. If the free market had been allowed to self-correct, the problem would be smaller.

The free market is free only if everyone plays by the same rules. Otherwise it’s a controlled market—controlled by the government in this case. The government decides whether your private for-profit company qualifies as a charity. If so, your company then has a competitive advantage over those who have to obey the tax code. Your company follows a different section of the code, which exempts you from the other rules.

Of course all corporations are charities. They donate funds in the form of taxes to support society and finance government. Unlike nonprofits. So, even though nonprofits claim to be doing a greater good than for-profits, it ain’t so. Nonprofits benefit small groups whereas for-profits support the society as a whole including the small groups.

Your tax-exempt status is discrimination on the basis that you call your profit “nonprofit.” Hence nonprofits don’t explain and justify their tax-exempt status. Perhaps a true charity could do it. But most nonprofits must rely on repetition and insinuation that profit is a bad thing.

The nonprofit sector has become so large that some legitimate companies show favoritism at the expense of profit. For example, WINA AM-1070 has Plug-away Monday. Corporations on corporate welfare can call in to advertise for free. WCHV AM-1260 invites notices of your “community or non-profit event.” Why isn’t it simply “community event”? Because nonprofit businesses are not focused on the community, but rather they exist to benefit small groups.

If Charlottesville has so many resources, why haven’t we solved long-term issues such as affordable housing? Not only are the nonprofits dragged by the injustice of unequal legal treatment, often their actions are contrary to their stated mission. So it can be inferred that their true motivation lies elsewhere.

For example, Piedmont Housing Alliance is in the business of affordable housing. But they’ve never produced a new or remodeled house at the same or lower price than before PHA came along. The 10th and Page project stands as a stunning example.

This past winter PHA explained they were making houses affordable to someone who earns 80% of the area median income. So if you lived somewhere at 40% of AMI, your rent just doubled. Piedmont Housing Alliance is eliminating the most affordable units first, driving out the most needy among us.

Habitat for Humanity is another example of a corporation that should lose its nonprofit status. Once your status is illegitimate, it’s easier for you to justify other unethical behaviors. The Habitat houses at 1230 and 1232 Holmes Avenue are examples of criminal acts, except in the nonprofit world, they’re called good deeds.

I must confess some hypocrisy on the nonprofit issue. For $35 annual membership, I joined the Albemarle-Charlottesville Historical Society on November 27, 2007. A board member and friend, Fred Dove recruited me over several years. I finally joined when the Society accepted some urban renewal archives from the City Assessor and Redevelopment and Housing Authority.

“Update on illegal Habitat houses”, Dec. 18, 2006. Includes two thoughtful comments and excerpts from “Council Beat: Habitat for Humanity land grab, 64 signatures in opposition” report on the Feb. 22, 2005 Council meeting that got the ball rolling.

“Staunton to seize house for Charlottesville nonprofit director: Owner promises sustained legal battle”, Jan. 17, 2007. Includes “"Charlottesville Council resolves support of gay civil rights: Dice urban renewal vote postponed", Nov. 17, 2004.

“Wanda Yvonne Stevens, director of Staunton Redevelopment and Housing Authority, wants to seize and sell Gerard Labreque's house at 18-20 Stafford St. and others to Staunton Development Solutions headed by Stu Armstrong, director of Charlottesville's controversial nonprofit Piedmont Housing Alliance. Staunton will get $1.4 million in grant money to boot.”

More recently on the affordable housing front, the Hope Community Center homeless shelter was shut down by the city ostensibly for zoning violations. The same excuse was used to close down Single Room Occupancies in Belmont in 2006. The city now promises an SRO dacility in the future to replace the Hope Center.

Charlottesville City Council Minutes. June 19, 2006.

“Mr. Marshall Slayton, attorney representing Donnie McDaniel, said this Mr. McDaniel owns three properties in Belmont that provide single room occupancy for people who need it, and he is being forced to shut down by the City. He said single room occupancy is a much cheaper alternative for residents. He said 20 individuals could be put on the street, and that will cost a lot more than this housing. He said the City Code requires that there be a living space shared by occupants, but he has been told this would be more of a problem because this would cause friction among occupants. He said the Thomas Jefferson Planning District Commission is studying how to have more of this type of housing. He asked Council to look into the issue. He said the hearing is before the judge on Thursday.”

Here’s what I recorded from the same meeting. (“$1 million Jefferson School makeover: Council hears 3 B.A.R. appeals”, June 25, 2006.) I didn’t know the spelling of names. It’s clear I had a different bias than the City Clerk Jeanne Cox. The attorney read the addresses and dates into the record but the clerk didn't record them.

"Marshall Slater, attorney for Donny McDaniel, said the city is trying to shut down single room occupancies at 1623, 1625 and 1505 Meridian Street in Belmont. Slater said a Norfolk study has shown that single room occupancies are the most economic and successful residences for a segment of the population. He was to appear in court Thursday June 22 to block the threatened evictions."