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Massachusetts Liberal

Observations on politics, the media and life in Massachusetts and beyond from the left side of the road.

Tuesday, December 09, 2008

Ugly times ahead

The tsunami is gathering strength off shore.

Local property taxes are rising, even while home values fall. House Speaker Sal DiMasi is talking about a 5-10 percent cut in local aid, cash used to pay for police, firefighters and teachers. Boston Mayor Tom Menino is looking to the tax-exempt as geese that can lay golden eggs.

Meanwhile, Harvard records a 22 percent ($8 billion) fall in its endowment over the past four months. Other universities and tax-exempt organizations like churches and hospitals are getting their own houses in order to deal with the massive cuts in state and federal aid and charitable donations that come their way and help pay for the services they provide.

This is what is known as eating the seed corn.

We haven't really seen the depth of the economic collapse as the ripples spread out like relentless waves. Yet. No one is crying wolf here -- neither the government leaders who say they need the cash nor the homeowners or non-profit executives who say they don't have it.

And that's why President-elect Barack Obama is talking about a massive federal plan to create jobs through public works projects -- a bailout plan for the people who have so far been only handling the buckets.

The needs and excuses are equally valid. There is some serious pain on the government side. Many in the non-profit world are going to feel it as programs are cut and they will be forced to rearrange what they have or continue the spiral of cuts.

But they make an inviting target with their deep reserves -- feel sorry for Harvard lately? Yet they are far less clueless organizations than individuals such as John Thain, the former chief executive of Merrill Lynch who thought it was appropriate to keep his $10 million bonus for running the company into the ground.

This is going to get very, very ugly.

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Blogger dan bosley said...

One other consideration: As nonprofits lose money in their endowments, some are hit with double whammies. A lot of giving is restricted. In other words, someone gives a huge donation with restrictions that this be used to endow a program or a building. In some cases, the non profit has used this money to invest principal thinking that there may be lean years, but who would lose the initial investment?! In this bear market, not only has interest been lost, but principal. That means that some restricted accounts have to be made whole and that means taking unrestricted money to "rebalance" restricted accounts. Internally, this is a book keeping function. But it means that there is less unrestricted money in some non profit endowments and that exascerbates the problem

December 10, 2008 3:54 AM  

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