Both the tenor and the accomplishments of the second session of the 98th Congress, which began on Jan. 23, will be largely governed by the 1984 elections. One-third of the Senate, all 435 members of the House of Representatives and the President go before the voters in November.
In the coming months, the actions of the legislative and executive branches will be heavily influenced by potential political impact. This year’s congressional calendar calls for only 60 working days before Nov. 6, while a substantial load of legislation awaits attention. The prospect of a completed federal budget by the Oct. 1 deadline seems unlikely in many quarters; delays in appropriations legislation could again result in a continuing resolution to keep the business of the federal government running after the beginning of the new fiscal year. Action—or the lack of it—on a wide variety of bills before the Congress will impact directly on nonprofit arts organizations.
The most visible piece of arts legislation before the congress , is the Interior Appropriations Bill, which includes funding for both National Endowments and the Institute of Museum Services. In his budget which was presented to Congress Feb. 1, President Reagan requested an $18 million cut in arts funding for the coming fiscal year. This represents an 11 percent reduction from the 1984 Congressional appropriation of $162 million for the National Endowment for the Arts.
Congressman Thomas J. Downey (D-NY), chairman of the bipartisan Congressional Arts Caucus, which includes more than 180 members of the House, termed the Presidents request “unrealistic and unacceptable.” Downey noted, “The Administration knows there is tremendous support for the arts in Congress. This Congress, the Arts Caucus and the Appropriations Subcommittee have made the arts in America a priority. It’s unfortunate the Administration doesn’t share our commitment.”
NEA representatives, including chairman Frank Hodsoll, were scheduled to testify before the House Interior Appropriations Subcommittee—chaired by Congressman Sidney R. Yates (D-IL)—on March 28 to explain the Administration’s rationale for reduced arts funding. The sub-committee has also scheduled hearings with members of the national arts community on April 10. Testimony for these hearings is being coordinated by the American Arts Alliance in Washington. According to Anne O. Murphy, executive director of the Alliance, “At these hearings, we will present testimony and documentation in support of a 1985 NEA budget not only greater than the Administration’s request, but greater than the 1984 congressional appropriation of $162 million.” In working with its nationwide constituency, the American Arts Alliance has identified a need for increases in both program and Challenge Grant funds. “We are concerned that while overall Endowment funding has gone up,” Murphy continued, “the level of support offered to arts institutions has been eroded. Our case for increased funding will be based on meeting the growing needs of America’s arts institutions.”
Although serious legislative debate will likely be deferred until 1985, the Congress may also spend some time this year studying the reauthorization of the National Endowment for the Arts. The basic legislation which authorizes spending levels for the NEA expires Sept. 30, 1985, and Congress must pass a bill to continue the NEA authorization before then.
Action taken by the Congress in the closing days of the 1983 session kept nonprofit postal rates at the current 5.2 cents per piece through Sept. 30, 1984. For fiscal 1985, the President has again proposed reducing the Postal Revenue Foregone Subsidy—by $479 million. In light of ongoing national budget deficits, as the postal subsidy reaches the billion-dollar level ($879 million was approved for the subsidy in 1984), Congress is certain to take a much closer look at this budget item.
The impact of reduced federal subsidy in this area could have dire consequences for the thousands of nonprofit arts organizations which are struggling with their own deficits. If the President’s proposal for fiscal 1985 is adopted, the per-piece rate for third-class bulk mail will jump to at least 8.5 cents. Such an increase, which would add $16,500 to the cost of mailing 500,000 brochures, could substantially affect the audience-building and fund-raising direct-mail activities on which most arts organizations depend.
Legislation calling for increased taxes is unlikely in an election year, but following the November elections, the new Congress may resort to tax hikes in order to deal with the prospect of looming deficits during the rest of this decade. During the first session of this Congress, efforts to limit the full implementation of the Charitable Contributions Law—passed as a part of the Economic Recovery Tax Act of 1981—were defeated in both the House and Senate. As it now stands, the sliding-scale charitable deduction for individuals who do not itemize their federal income tax is due to expire in 1986, the same year the law will be fully implemented. Current provisions allow taxpayers to deduct 25 percent of the first $300 in charitable contributions; once fully implemented, the law will allow deduction of 100 percent of all contributions. The importance of this tax incentive to nonprofit organizations was a key argument in beating back efforts to limit or repeal the Charitable Contributions Law during the last session of Congress. However, like the Postal Revenue Foregone Subsidy, the Charitable Contributions Law is considered a vulnerable target as the Congress considers ways to increase federal revenues.
In a related matter, legislation was Introduced during 1983 which would exempt from taxation nonprofit revenues derived from the sale, rental or exchange of mailing lists. The Internal Revenue Service had issued a “letter ruling” which identified such revenues as “unrelated” business income, subject to taxation. While a letter ruling does not have the force of law, it has raised serious questions about the future policy of the IRS in this area. Hearings on this subject were held by the Senate Finance Taxation and Debt Management Sub-committee in 1983; however, legislation which would exempt nonprofits from such taxation is still awaiting congressional action.
Other legislation pending before the Congress includes House and Senate bills introduced in 1983 which would make changes In the 1969 Tax Reform Act to allow gifts to private foundations to be treated in the same manner as gifts to other charities. Current law allows greater deductions for gifts of cash and appreciated property to public charities than to foundations. The new legislation would also ease the administrative burden faced by foundations which are required to conduct extensive pre-grant investigations of potential recipients. Other features of the legislation would allow for extensions of the present five-year divestiture rule and would reduce foundation excise taxes to one percent under certain conditions. The House Ways and Means Committee held hearings on the bill during 1983, and although the matter has yet to be settled, passage could substantially improve foundation portfolios and increase funds available for foundation grantmaking.
The National Heritage Resource Act, introduced during the first session of the Congress, would allow artists to claim the fair market value of donations they make to charitable institutions such as museums and libraries. Under current law, an artist can deduct only the nominal costs of materials used in the creation of a work of art. Since the adoption of the current law—as part of the Tax MOM Act of 1969—such charitable donations by artists have dropped dramatically. A major stumbling block to the passage of this bill appears to be the powerful chairman of the House Ways and Means Committee, Rep. Dan Rostenkowski (13-IL), who must consent to hold hearings on the subject. Until such hearings are scheduled, further action on the bill is stalemated.
Other tax-related legislation expected in the coming months includes a measure to limit the growing use of “sale/leaseback” arrangements as tax breaks. Under the provisions of the Economic Recovery Tax Act of 1981, private investors who rent to tax-exempt organizations may claim an accelerated depreciation on their investment. Real estate owners can reduce their taxes considerably through this means, which concurrently represents a loss in federal revenues. Pending legislation would curtail such practices sharply.
Media-related legislation includes appropriation figures for the Corporation for Public Broadcasting. The Administration’s 1985 budget includes a recission of $30 million for the FY’86 budget of the CPB, an agency which is funded two years in advance. Congress appropriated $130 million for the CPB in 1986, but the President’s budget reduces that figure to $IOD million. In late 1983, the President signed a bill which authorized $162 million for the CPB in 1986; the new recission will likely be a subject of considerable debate.
Possible copyright infringements and the potential for huge royalties involved with the home taping of films and musical recordings launched a legislative debate during 1983 which pitted hardware manufacturers—Sony, Betamax and others for the “consumer”—against the motion picture and recording industries which represent artists. Bills relating to such royalty payments did not move beyond the hearings stage, as the legislative branch waited for the judiciary to decide the question. The Supreme Court has since ruled that such home taping is legal, as long as it remains private. While no legislation is expected to pass this year, film and music interests are expected to continue to press the case for copyright and royalty guarantees.
Other arts-related issues include proposed revisions in the Office of Management and Budget’s Circular A-122 made late in 1983 which would have placed strict curbs on the advocacy efforts of all nonprofit organizations. Following a public outcry, the OMB withdrew its proposed changes in “Cost Accounting Principles for Nonprofit Organizations” and issued a revised version early in 1984. Following the second version, both the American Civil Liberties Union and the Congressional Research Service raised a number of questions which cast doubt on the OMB’s authority to “legislate” without the consent of Congress. If corrective action is not taken by the OMB itself, the Congress may act on pending legislation which would limit the OMB’s authority in this area.
Another arbitrary ruling—by the General Services Administration—which prohibits government agencies from paying compensation to members of federal advisory panels, such as the NEA’s Theatre Panel, may also be the subject of legislative action in the coming months. Since Arts Endowment panel members are often freelance individual artists with limited financial resources, they have historically received compensation for their services to the NEA; the new prohibitions on panel compensation are generally believed to be potentially damaging to the peer review concept. Legislation to allow such payment—overturning the GSA ruling—has yet to be introduced.
The appropriations legislation necessary to complete the federal budget process by Oct. I may fill the congressional plate between now and November, in which case all other legislation could well be delayed until the first session of the 99th Congress convenes in January 1985. ❑
