COVID-19 has Suddenly Deepened Charities’ Funding Challenges
Senator Omidvar and Hilary Pearon argue with a surging need for the social services the charitable sector provides, an overdue move to modernize its funding model has become urgent.
Even before the pandemic, the Senate Special Committee on the Charitable Sector noted after a year-long study that the charitable sector was under a “slowly intensifying crisis.” Now it is facing an unprecedented challenge to its funding models and to its delivery of needed programs. The sector, which numbers over 86,000 registered charities and employs thousands of Canadians, was already facing some very real concerns: decreasing numbers of volunteers, a plateau in charitable donations, constraints on government grants and a federal regulatory framework that is seriously out of date for the realities of the 21st century. Many charities do not have operating reserves and cannot benefit from the subsidy programs available to small business for productivity investments in technology and human resources. Nor do they typically have access to bank loans to float them especially when cash flows have slowed to a trickle. This makes charities uniquely vulnerable to the sort of financial and economic downturn that we see today.
Consider the following: Imagine Canada, a national umbrella organization for the charitable sector, has estimated that depending on the length of the shutdown charities will see financial losses this year of between $9.5 billion and $15.7 billion and layoffs of 184,000 to 194,000 individuals. Fundraising has become much more difficult as the events and gatherings that provide such significant revenue to many charities are cancelled. The basic cost of providing essential community services has increased, given health and safety concerns. For organizations that need to shift to remote and virtual services, there is a cost to acquiring the needed systems. Imagine Canada predicts a severe cash crisis, which will seriously jeopardize the existence of many charities. When we need charities the most, many may no longer be there.
Governments are responding to address some of these issues. The federal government has promised a 10 percent wage subsidy for employers, including charities. The Ontario government is promising $200 million to the social services sector to keep doors open and services maintained. This funding is flowing through municipalities, which can identify these needed services quickly. Other provincial governments are promising support to critical social services in the community. For example, Nova Scotia is investing $230,000 to the Community Links and Seniors’ Safety Programs to respond to the needs of vulnerable seniors. British Columbia has increased funding to key services such as health care, housing and social services to support those living in BC. And private funders such as community foundations, United Ways and private foundations are mobilizing to create collective or community response funds to support charities in this crunch.
But will it be enough? The 75 percent wage subsidy will help, but the unique needs of the sector must be considered. The big issue for the sector centres on the requirement for a 30 percent decline in revenues due to COVID-19. If this is to remain, the manner of calculation and reporting needs to be customized for the sector as their revenue cycles are different from the private sector. Charities must be allowed to forecast revenue decline. More is needed. Imagine Canada is calling for an immediate $8 billion federal stabilization fund to be distributed as grants through provincial, territorial and local governments. The priorities should be emergency funding for community food programs, volunteer management, personal protective gear and emergency support for vulnerable people. Governments could also make emergency loans available to charities as well as businesses.
Beyond immediate needs, this crisis has underlined the need for a review of the ways in which the federal government deals with the charitable sector. Of course, calls are now being made to enhance charitable tax incentives and to match donations in order to increase philanthropic flows. But further dependence on philanthropy is not a solution. It’s what has created the sector’s vulnerability. Charities are not simply mechanisms to collect individual charitable gifts. They are professional organizations with staff, programs, governance and capital structures, and business models. It is time for the federal government to take charitable organizations seriously not just as service providers but as employers, community builders and innovators. There should be policy and regulatory frameworks for this sector that help it flourish, just as the government supports small business.
Yes, charities are tax-exempt. Yes, they receive funds from individuals and companies that include a portion that would otherwise have gone to the government in tax. And, yes, they are accountable to the public to act for public benefit. Yet the regulatory framework for charities arguably constrains charities far beyond what is needed. They must pursue their charitable purpose. But they should not be forbidden from sharing or earning revenues that are dedicated to that purpose simply because they engage in their work with non-charities or they attempt to earn revenues from business-like activities.
The Senate Special Committee Report of June 2019 recommended after a lengthy analysis and based on the evidence of many witnesses that the federal government pursue a review of the Income Tax Act as it pertains to charities (a section that has not been reviewed comprehensively for 50 years). The provisions that limit revenue-raising activities and that constrain transfers of funds between charities and non-charities are of particular importance given the impact of the pandemic. The Senate Committee and the many sector witnesses were clear that charities must continue to pursue public purposes and must have certain obligations that they meet to retain their charitable status. But reasonable flexibility in revenue raising and sharing of funds between charities and non-charities should be allowed.
Even before the pandemic, Imagine Canada conducted an analysis that predicts a $25-billion social deficit for charities by 2026 if nothing changes. Charities must be able to secure sustainable revenues and reduce their vulnerability to economic shocks. Other countries, such as the UK, Australia and the US have modernized their charity regulations to enable charities and non-charities to work together, while Canada seems stuck in an Elizabethan past. Canada is left out in the cold, especially when it comes to working overseas with partners in the Global South. The needs will be all the more glaring after the pandemic passes.
Charities are important, but in a pandemic, they are critical not only for recovery but also as a crucial economic driver. They play an important role as an autonomous and professional sector in our society. An enabling policy framework will help them make their valuable contribution more effectively to the benefit of us all.