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Wall Street Journal


Nobody Does it Better

October 24, 2008

By Howard Husock

In a building that once housed a small appliance-repair business just outside of the New Orleans city limits, Zack Rosenburg and Liz McCartney lead an effort that some (including the local United Way) consider the most effective home-rebuilding program in the area. The St. Bernard Project's combination office and warehouse is a buzzing crossroads where hipster college students work with volunteering evangelicals from around the country and local residents, plotting how to get the best deals on plumbing and electrical supplies. They send out work crews (more than 7,000 volunteers to date) to help rebuild homes owned by people who can't afford to repair them. Three years after Hurricane Katrina struck, some families are still living in government trailers in their own front yards.

The St. Bernard Project builds a home in New Orleans.

An organization that wasn't even imagined before the levees broke now has a $2.3 million annual budget almost entirely drawn from small, tax-deductible donations, and it has already rebuilt—at just $12,000 each—more than 150 of the small ranch-style houses that line the side streets around blue-collar St. Bernard's parish.

Mr. Rosenburg and Ms. McCartney exemplify a new breed, the social entrepreneur. Such founders of nonprofit organizations combine social purpose and business acumen. The two gave up careers in Washington (he as a criminal defense lawyer, she as the leader of an education nonprofit) to start the St. Bernard Project—with nothing in the bank, at first, but their own and their families' money. It's the type of story that wins praise from Republicans and Democrats alike. Both President Bush in his 2007 State of the Union address and Bill Clinton in his 2007 book "Giving" had special praise for the social entrepreneur. Yet the St. Bernard Project—along with an untold number of similarly effective nonprofit start-ups—could find itself starved for financial support, thanks to an expected congressional re-examination of the charitable tax deduction, which in 2009 is expected to total about $32 billion.

The essence of the looming discussion: Should the charitable tax deduction be reserved only for those organizations that can show they are directly serving, in the phrase of Rep. Xavier Becerra (D., Calif.), "the poor and disadvantaged"? The congressman, a member of the tax-code-writing House Ways and Means Committee, has also expressed "intense concern" about what he views as the low level of racial and ethnic diversity within organizations supported by charitable contributions.

As he told Nonprofit Quarterly: "You will see a correlation between those that are diverse and those that are doing a good job of reaching those in need." Then he explained his economic logic: "I start off with the proposition that if you're getting a tax subsidy, another taxpayer must make up for what you're not paying. That subsidy should serve a good purpose... Statistics I've seen suggest that only one in every 10 dollars are serving poor people or disadvantaged people. I have to wonder where the other nine are going."

Clearly, Rep. Becerra—and he is not the only politician voicing such sentiments—would like to attach strings to the charitable deduction, requiring organizations to conform to racial or economic quotas. But such a policy could well undermine the efforts of those offering direct help to people in need.

The St. Bernard Project is a case in point. On paper it might well fail a number of Rep. Becerra's implied tests. Its clientele—truckdrivers, fishermen, sugar-refinery workers—are neither unemployed nor technically poor. All, by definition, own a significant asset—a home that needs repair. Both clients and staff, moreover, are predominantly white—St. Bernard's is a big step up the economic ladder from the adjoining Lower Ninth Ward of New Orleans, a place much poorer and blacker and more closely associated with the suffering from Katrina. But there is a preventive aspect to a lot of charity. As Mr. Rosenburg notes of the St. Bernard Project: "If we didn't address the needs we see here, our people would quickly become the poorest of the poor."

If the IRS begins micromanaging the charitable tax deduction, it is hard to know where it will stop. How long would it take for the IRS to deny the incorporation of a new nonprofit on the grounds that a similar one is already serving a given area? The St. Bernard Project was far from the first home-rebuilding effort in greater New Orleans. Yet it has found its way clear to helping many who couldn't qualify for government assistance—because it can operate with a discretion that the government inevitably lacks. "We understand some people had to get out without thinking about grabbing their gas bill," says Mr. Rosenburg, referring to a famous FEMA prerequisite for aid. Reporting details of day-to-day operations to the IRS would make him, in effect, a government subcontractor, not the role for which he and other social entrepreneurs sign up. Even a program doing the sort of work that Rep. Becerra favors might, in other words, have no easy time proving it.

We are in the midst of an explosion of new organizations that target problems government is either failing to address or addressing badly. Boston's Beacon Hill Village establishes mutual-aid systems that allow elderly people who have a range of incomes to stay in their homes. The Washington-based Violence-Free Zone program provides mentors for the most violence-prone students in low-performing schools—so that other students can get on with learning. In New York, the Girls Education and Mentoring Service tries to break the hold of pimps on teenage prostitutes. The Career and Culinary Arts Program tries to make up for the decline in effective vocational education by giving budding chefs from modest backgrounds the training and internships they need. These and many other programs conceived by social entrepreneurs have begun to spread across the country, with little or no help from the government. Let's hope the government can manage to stay out of their way.



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