Thad Calabrese

Associate Professor of Public and Nonprofit Financial Management; Director of Finance Specialization

Thad Calabrese

Thad Calabrese studies public and nonprofit financial management, broadly focusing on the management and governance of public and not-for-profit organizations, as well as the institutions that affect managerial decision-making in these entities. His research and teaching deliberately span both the governmental and not-for-profit sectors because both provide collective goods and services to the public – frequently in collaboration or through contracting arrangements. Thad's research focuses on two general themes The first is the general management problem of organizational slack resource management, which also includes debt management. The second focuses on the institutions and relationships between the state and not-for-profits, and how these influence decisions made by each. His research has appeared in the Journal of Accounting and Public PolicyPublic Administration ReviewNonprofit and Voluntary Sector Quarterly, Public Budgeting and Finance, Nonprofit Management & LeadershipNational Tax Journal, among others. He has co-authored three texts: Financial Management for Public, Health, and Not-for-Profit Organizations, 4th Edition (Pearson Prentice Hall) and 5th Edition (CQ)Government and Not-for-Profit Accounting: Concepts and Practices, 7th Edition (Wiley), and Accounting Fundamentals for Health Care Management, 2nd Edition (Jones and Bartlett Learning). Thad was awarded the Editors' Prize for Best Scholarly Paper in Nonprofit Management & Leadership for 2013, and joined the journal's editorial board in 2015.

Thad is the current Treasurer for the Association for Research on Nonprofit and Voluntary Action, and is the Vice Chair for the Association for Budgeting and Financial Management (ABFM). He also serves on the Governmental Accounting Standards Advisory Council representing ABFM. In the past, he served on the Executive Committee of the Association for Budgeting and Financial Management for three years, and also chaired the Conference Scholarship Committee for the Association for Research on Nonprofit and Voluntary Action in 2014. He also served for several years on the Audit Committee of the Support Center for Nonprofit Management, which provides consulting services, transition management, and training to nonprofit organizations primarily in New York and New Jersey. Before joining the Wagner School, Thad was on the faculty at the School of Public Affairs at Baruch College – CUNY. Prior to academia, Thad worked in the New York City Office of Management and Budget in tax policy and also as a financial consultant working with nonprofit organizations in New York City.

This course focuses on financial management concepts and skills that are crucial for nonprofit organizations to achieve their mission. This course builds on the themes, concepts and theories covered in the Core Financial Management course and provides students the opportunity to apply that knowledge to an operational context.  Case methodology will be utilized to examine financial management practices of NGOs and Non-Profit entities throughout the world. Through these cases, we will look at organizations' approach to cash flow management, revenue and earned income management, capital budgeting, cost analysis and allocation, investment management, the analysis of new programmatic investments, project finance, and strategic financial analysis. This course is relevant to students interested in working with or in both domestic and international organizations.

Download Syllabus

This course incorporates topics of planning and financial decision making as applied to health-care organizations. This course will cover two main topics:
-Financial analysis both as a proactive exercise and a tool for organizational control.
-Issues of budgeting, cost determination, pricing and rate setting in a healthcare environment.
The course includes lectures, problem solving and a finance term project. Students should be prepared to discuss assigned problems and readings in class. The course integrates academic and practical approaches and perspectives on current health-care financial problems.

Download Syllabus

In this core course in financial management, students will learn the fundamentals of budgeting and accounting for public, health, and not-for-profit organizations. Through readings, lectures, real-world case studies, and assignments, students will gain an understanding of how to use financial information in organizational planning, implementation, control, reporting, and analysis. In addition, students will have the chance to develop their spreadsheet skills by using Excel to perform financial calculations and create financial documents.

The first half of the course focuses on managerial accounting, a set of tools used by managers for planning, implementation, and control. Topics in this portion of the course include operating budgets, cash budgets, break-even analysis, indirect cost allocation, variance analysis, the time value of money, capital budgeting, and long-term financing.

The second half of the course focuses on financial accounting, a set of tools used by managers and outside observers for reporting on and analyzing an organization’s financial health. Topics in this portion of the course include the preparation and analysis of financial statements (balance sheet, activity statement, and cash flow statement), ethics in financial management, and government accounting and financial condition analysis.

Download Syllabus

In this core course in financial management, students will learn the fundamentals of budgeting and accounting for public, health, and not-for-profit organizations. Through readings, lectures, real-world case studies, and assignments, students will gain an understanding of how to use financial information in organizational planning, implementation, control, reporting, and analysis. In addition, students will have the chance to develop their spreadsheet skills by using Excel to perform financial calculations and create financial documents.

The first half of the course focuses on managerial accounting, a set of tools used by managers for planning, implementation, and control. Topics in this portion of the course include operating budgets, cash budgets, break-even analysis, indirect cost allocation, variance analysis, the time value of money, capital budgeting, and long-term financing.

The second half of the course focuses on financial accounting, a set of tools used by managers and outside observers for reporting on and analyzing an organization’s financial health. Topics in this portion of the course include the preparation and analysis of financial statements (balance sheet, activity statement, and cash flow statement), ethics in financial management, and government accounting and financial condition analysis.

Download Syllabus

In this core course in financial management, students will learn the fundamentals of budgeting and accounting for public, health, and not-for-profit organizations. Through readings, lectures, real-world case studies, and assignments, students will gain an understanding of how to use financial information in organizational planning, implementation, control, reporting, and analysis. In addition, students will have the chance to develop their spreadsheet skills by using Excel to perform financial calculations and create financial documents.

The first half of the course focuses on managerial accounting, a set of tools used by managers for planning, implementation, and control. Topics in this portion of the course include operating budgets, cash budgets, break-even analysis, indirect cost allocation, variance analysis, the time value of money, capital budgeting, and long-term financing.

The second half of the course focuses on financial accounting, a set of tools used by managers and outside observers for reporting on and analyzing an organization’s financial health. Topics in this portion of the course include the preparation and analysis of financial statements (balance sheet, activity statement, and cash flow statement), ethics in financial management, and government accounting and financial condition analysis.

Download Syllabus

This course incorporates topics of planning and financial decision making as applied to health-care organizations. This course will cover two main topics:
-Financial analysis both as a proactive exercise and a tool for organizational control.
-Issues of budgeting, cost determination, pricing and rate setting in a healthcare environment.
The course includes lectures, problem solving and a finance term project. Students should be prepared to discuss assigned problems and readings in class. The course integrates academic and practical approaches and perspectives on current health-care financial problems.

Download Syllabus

This is a required course for all Wagner students in the health financial management specializations and is recommended for health management students. The course incorporates topics of capital planning and other finance issues making as applied to health-care organizations. This course will cover three main topics:
-Public payer rate setting
-Understanding risk and the costs of capital in making financial decisions.
-Issues in working capital and investment management activities of healthcare organizations.
The course includes lectures, problem solving and a term finance project. Students should be prepared to discuss assigned problems and readings in class. The course integrates academic and practical approaches and perspectives on current health-care financial problems.

Download Syllabus

This course focuses on financial management concepts and skills that are crucial for nonprofit organizations to achieve their mission. This course builds on the themes, concepts and theories covered in the Core Financial Management course and provides students the opportunity to apply that knowledge to an operational context.  Case methodology will be utilized to examine financial management practices of NGOs and Non-Profit entities throughout the world. Through these cases, we will look at organizations' approach to cash flow management, revenue and earned income management, capital budgeting, cost analysis and allocation, investment management, the analysis of new programmatic investments, project finance, and strategic financial analysis. This course is relevant to students interested in working with or in both domestic and international organizations.

Download Syllabus

2018

Thad Calabrese and Anubhav Gupta. A Replication of 'Agency Problems of Excess Endowment Holdings in Not-for-Profit Firms' (Journal of Accounting and Economics, 2006). Public Finance Review (2018).
Forthcoming
Abstract

Accounting Fundamentals for Health Care Management is ideal for an introductory course in financial accounting in both undergraduate and graduate programs. With a focus on basic accounting in health care management, this essential book contains the vocabulary of and an introduction to the tools and concepts employed by finance officers. Students will learn how to assess financial information, ask the appropriate questions, and understand the jargon-laden answers.

The Third Edition reflects the changes since the enactment of health care reform. It also brings the book in compliance with recent and near-term changes to accounting standards by the Financial Accounting Standards Board including how bad debts are reported, the presentation of cash flow statements, and the presentation of net assets on the balance sheet.

Woods Bowman, Thad Calabrese, Elizabeth Searing. Asset Composition. In Bruce A. Seaman and Dennis R. Young, eds. Handbook of Research on Nonprofit Economics and Management. Northampton, MA: Edward Elgar Publishing, 2018.
Thad Calabrese and George Mitchell. Proverbs of Nonprofit Financial Management. American Review of Public Administration.
Forthcoming
Thad Calabrese. The Strategic Use of Pensions by Not-for-profit Organizations. Journal of Pension Economics, 2018.
Forthcoming

2017

Thad D. Calabrese. Do Operating Reserves Stabilize Spending by Nonprofit Organizations?. Nonprofit Management & Leadership.
Forthcoming
Deborah Carroll and Thad Calabrese. Intersecting Sectors? The Connection Between Nonprofit and Government Spending. Journal of Public and Nonprofit Affairs, 3 (2017), pp.247-271.
Forthcoming
Todd L. Ely and Thad Calabrese. Public Borrowing for Private Organizations: Costs and Structure of Tax-Exempt Debt through Conduit Issuers. Public Borrowing for Private Organizations: Costs and Structure of Tax-Exempt Debt through Conduit Issuers. Public Budgeting and Finance 37(1): 3-25.
Abstract

New York City’s municipal leaders have run up a tab of more than $95 billion and continue to charge about $5 billion more annually to this bill. The current debt equals about $30,000 for each household in New York City, and the burden will continue to grow without changes to current policies.

The credit card used by municipal leaders is known as OPEB: other postemployment benefits. These benefits represent a part of the compensation for people who work for the City of New York, just like salaries and other fringe benefits. OPEB are benefits promised to police officers, firefighters, teachers, and other civil servants who provide public services each day. The City promises them benefits in the future–and charges the promise on the credit card. Specifically, a variety of health insurance benefits promised to these workers when they retire are not paid for as they work, but are to be paid for in the future when they reach retirement age. The taxpayers having to foot those bills, at prices likely to be notably higher than their current cost, will be the next generation of New York City taxpayers.

This current OPEB financing arrangement violates a principle termed “intergenerational equity” which requires those who receive and consume services to pay for them rather than pass the cost on to future generations. This report examines the magnitude and nature of this fiscal problem that has been left unaddressed for decades. It also suggests strategies for reducing this financial burden on current and future generations by better aligning New York City’s OPEB with other municipalities’ benefits and establishing more appropriate arrangements for funding those benefits.

Thad D. Calabrese. The Use of Locally-Imposed Selective Taxes to Fund Public Pension Liabilities. In For Your Own Good: Paternalism, Taxes, and Fiscal Discrimination in the Twenty-First Century. Todd Nesbit and Adam Hoffer, editors. Mercatus Center, George Mason University.
Forthcoming
Abstract

This note delineates different motivations for holding endowment by nonprofits, analyzes the definitions and measurement of endowment in the literature, and details newly available data on endowment contained in the Form 990 since 2008. More than 43% of organizations report owning an endowment, and the overwhelming majority of endowment funds are held by higher education nonprofits. One third of endowment funds are unrestricted and 41% are permanently restricted, with heterogeneity across subsectors. Endowed nonprofits exceed average payout rates each year of 5%. Annual endowment payouts average 4.1% of total organizational expenses, which measures the sector’s dependence on endowment revenue for operations. We evaluate past endowment measurement approaches using actual endowment data and find wide variation in validity. Although still imperfect, the new endowment data allow researchers to better understand a key distinguishing financial feature of the nonprofit sector.

Abstract

Grading schemes are an increasingly common method of quality disclosure for public services. Restaurant grading makes information about food safety practices more readily available and may reduce the prevalence of foodborne illnesses. However, it may also have meaningful financial repercussions. Using fine-grained administrative data that tracks food safety compliance and sales activity for the universe of graded restaurants in New York City and its bordering counties, we assess the aggregate financial effects from restaurant grading. Results indicate that the grading policy, after an initial period of adjustment, improves restaurants’ food safety compliance and reduces fines. While the average effect on revenues for graded restaurants across the municipality is null, the graded restaurants located geographically closer to an ungraded regime experience slower growth in revenues. There is also evidence of revenue convergence across graded and ungraded restaurants in the long term.

2016

Abstract

The importance of tax-exempt borrowing as a capital source to the nonprofit sector has significantly grown over time. Tax-exempt bonds issued by nonprofits has risen from an inflation-adjusted $106.3 billion in 1993 to $388.5 billion in 2010 representing an 8% compound annual growth rate over the period. The increased importance of tax-exempt borrowing relative to other borrowing for nonprofits has gone unnoticed. Here we ask what factors are associated with this trend. We find wide variation in the increasing use of tax-exempt bond usage between nonprofit sectors. While nonprofit borrowers other than hospitals have increasingly entered the tax-exempt capital market over the past decade, they still tend to be large organizations with lower risk of bankruptcy or default. Our empirical findings continue to raise the questions that others have raised: how do we make smaller, capital-starved nonprofits better able to take advantage of the tax-exempt market in a responsible manner?

Abstract

Now in its Fifth Edition, Financial Management for Public, Health, and Not-for-Profit Organizationsis the leading textbook on financial management in the government, health, and not-for-profit sectors providing a comprehensive yet practical introduction to the financial decision-making and management skills required of students and practitioners in the field.  Assuming readers have no prior training in financial management, the authors artfully combine the principles and theory and analytics of accounting and finance.  Coverage includes cost analysis, budget preparation, budget and variance analysis, management control, and recording and reporting financial information, with an emphasis on preparing and analyzing financial statements. The authors detail the foundational principles of each of the methods introduced in the book, and through step-by-step equations, figures, and exhibits, they illustrate how to execute financial management in practice.

Todd L. Ely and Thad Calabrese. Financial Reporting Practices for Government Conduit Debt Obligations. Gil S. Crain Memorial Research Grant Report for the Government Accounting Standards Board. December 2016.
Thad Calabrese. How Are We Doing? The Failure of Welfare Reform to Reduce Poverty. Book review of Privatizing the Policy by Holona L. Ochs. Journal of Public Administration Research and Theory.
Forthcoming
Abstract

As part of the Tax Reform Act of 1986, non-hospital nonprofit organizations were subject to a $150 million cap on tax-exempt debt outstanding. This federally-imposed constraint was lifted by the Taxpayer Relief Act of 1997. This paper examines how this credibly exogenous policy change – which was little noticed outside of the municipal bond industry – reduced the cost of capital, and, as a result, led to a significant increase in the use of tax-exempt debt overall and relative to other financing sources by nonprofit colleges and universities. Using two different comparison groups and a difference-in-differences estimation strategy, we find that nonprofit colleges and universities significantly increased the use of tax-exempt borrowing and altered capital structures following the policy change in 1997 with some variation by degree of constraint.

Thad Calabrese. Pension and OPEB Concepts and Management. In Encyclopedia of Public Administration and Public Policy. New York: Taylor & Francis, 2016.
Abstract

This article examines the breadth of the current forecast literature as it relates to public budget making. It serves to provide summary information to decision-makers who otherwise do not have the resources to learn more than a small amount focused on much more narrowly defined areas of forecasting (such as the politics of forecast bias). Next, it serves those who perform forecasting related to budgeting by reviewing the current methods and practices commonly used in this domain. It also provides a ground level for future public budget forecasting research. Finally, this article identifies several areas in which the public forecasting literature needs additional development. Several of these areas, such as the effectiveness of nonregression-based forecasting techniques, are quite important to the majority of governments in the United States and other subnational jurisdictions, where budget offices are limited and resource investments in technology are scarce.

2015

Abstract

Much existing scholarship on nonprofit organizations’ receipt of government funds appears to assume that there is something highly problematic about this relationship. Although rarely articulated in these studies, the concern about the negative effects of government funding turns on a view of nonprofits that privileges their private character. In this paper, rather than examining how public funds constrain private action, we inquire about how government deploys private organizations, via the mechanism of government funding, to secure a public good.  Using a case study of the nonprofit child welfare sector in New York State, we theorize a deficit model of collaborative governance in which nonprofits have been deputized by the state to secure children’s social rights but do not receive sufficient resources to cover the costs of securing those rights. Then, we connect this theory to organization-level financial management practices that pose challenges to the nonprofits of both survival and service quality. This nonprofit organizational instability concerns the state insofar as it threatens the securing of individuals’ social rights.

Thad Calabrese and Keith F. Safian. Health Care Costs and Value. In James R. Knickman and Anthony R. Kovner, Eds. Jonas and Kovner's Health Care Delivery in the United States. New York: Springer, 2015.
Calabrese, Thad and Justin Marlowe. Post-Employment Benefits: Pensions and Retiree Health Care. In Richard C. Kearney and Jerrell D. Coggburn, Eds., Public Human Resource Management: Problems and Prospects, 6th Edition (CQ Press)
Abstract

Public managers and elected officials are generally restricted from supporting election campaigns with public resources. In the case of legislative referenda, the public stakeholders responsible for putting a policy question on the ballot must play a neutral role when acting in their official capacity. A system where private money supports public goals has emerged as regulatory provisions simultaneously restrict direct private giving to elected officials and public support for election campaigns. Using campaign finance disclosures, election results, and municipal bond issuance data, we find that post-election fees paid to firms making political contributions are significantly higher than for non-contributors. The finding improves the understanding of how private dollars support public policy outcomes, raises questions about the circumvention of laws restricting the use of public resources in election campaigns, and informs ongoing consideration of the need for additional regulatory action and disclosure requirements to address issue committee campaign contributions. 

2013

Abstract

Five municipalities with populations over 100,000 have declared bankruptcy since 2008, as have some smaller ones, including Central Falls, RI, in 2011. The bankruptcies have unsettled citizens, current and retired employees, and creditors of the governments involved; further, the apparent increasing willingness of municipal officials to file for bankruptcy has raised concerns nationwide. Municipal bankruptcy is exceedingly rare. Only 650 US Bankruptcy Code Chapter 9 municipal bankruptcy cases were filed between 1937 and 2012; by contrast, 2009 alone saw more than 11,000 Chapter 11 corporate reorganization filings. The bankruptcy of Central Falls shows what can happen when systematic underfunding of employee benefit promises runs into a weak, declining economy. Central Falls is a relatively poor municipality. The consequences of bankruptcy can be severe for citizens, employees and creditors. As the current bankruptcy filings unfold in the courts, there is growing alarm among those concerned with government finances regarding the impact of bankruptcy on future borrowing costs and on the safety of employee benefit promises.

Abstract

We examine the use of pension obligation bonds (POBs) as a financing strategy to address the effects of unfunded pension liabilities on government operating budgets. POBs are publicly marketed as money-saving mechanisms that reduce pension system payments while allowing for increased spending on other government priorities. We review general POB usage and examine whether POBs altered school district spending patterns in Oregon and Indiana. Our results indicate that districts issuing POBs have not increased educational spending relative to other districts. Because POBs cost money to issue and manage, decision makers are encouraged to consider annual budgetary effects prior to issuance.

Abstract

Operating reserves allow nonprofit organizations to smooth out imbalances between revenues and expenses, helping to maintain program output in the presence of fiscal shocks. We know surprisingly little about why nonprofits might save operating reserves and what factors explain variation between organizations' savings behavior. Findings suggest that operating reserves are reduced in the presence of concentrated public funds, access to debt, fixed assets, and endowment. However, size is not an important predictor, indicating that the lack of reserves is not limited to small nonprofit organizations but is instead a sectorwide issue. Significant numbers of nonprofits maintain no operating reserves at all. One potential explanation is that organizations discount the benefits of reserves because they are evaluated on spending, focusing instead on the “benefits of costs.” This preference for spending over reserving may also help explain the general lack of liquidity in the sector beyond operating reserves alone.

2012

Calabrese, T., Carroll, D.. A Consequence of Exempting the Third Sector: Do Homeowners Pay More Property Taxes?. Public Finance and Management Vol 12(1): 21-50.
Marwell, Nicole, and Thad Calabrese, Jack Krauskopf. A Financial Analysis of New York State’s Child Welfare Organizations. Baruch College Center for Nonprofit Strategy and Management
Abstract

At A Time When Health Care Organizations Face Unprecedented Financial Challenges, Understanding Financial Accounting Is Important For All Health Care Professionals, Especially Those Who Manage A Department And A Budget. Designed For Both Students And Professionals, Accounting Fundamentals For Health Care Management, Second Edition Clearly Explains Accounting Principles And Applies Them To The Health Care Environment.Critical Topics Such As Recording And Reporting Financial Information, Depreciation, And Financial Statement Analysis Are All Thoroughly Covered The Second Edition Offers: New Co-Author, Thad Calabrese New Chapter (Chapter 2) Provides An Excel Tutorial. New Discussion Of The Impact Of Health Care Reform In Chapter 3 Updated Throughout With Information On IFRS Coverage Of Cash Basis Vs. Accrual Basis New Discussion Of Fair Value Simplified Discussion Of MACRS New Discussion Of Sarbanes-Oxley Act Many General Updates

Abstract

We analyze panel data of U.S. states to determine whether nonprofit contribution and program service revenues are correlated with state tax burden. State tax burden is modeled as a function of (a) state tax policy, (b) nontax policy factors that affect state income, and (c) other exogenous factors that are independent of state tax policy and do not directly induce income; regression results reveal correlations with variables in all three categories. Intergovernmental revenue (IGR) paid to local governments, debt burden, tax exporting, a tax revenue limitation, and nonprofit revenue are most consistently correlated with state tax burden. Financial support for nonprofits in the form of contributions helps to reduce state tax burden and does so at a meaningful level. This finding implies nonprofits provide goods and services that are supplementary to government provision. However, the supplementary nature of nonprofit service provision is not universal. Further analysis of contribution and program service revenues for nonprofits in particular service categories finds either no correlation with state tax burden, a reduction in state tax burden, or an increase in tax burden imposed on state residents over time. By controlling for factors influencing demand for service provision and state tax policy changes, the regression results also provide evidence that government acts as a free rider.

Abstract

There has been a significant amount of work done on the private funding of nonprofits. Yet, despite the enormous size of the nonprofit sector as a whole, the importance of private donations to the sector, and the significance of the sector to public finances, there has been very little empirical research done on the capital structure of nonprofit organizations, and none has examined the potential effects of borrowing on individual contributions. Debt might affect donations because programmatic expansion might “crowd-in” additional donors, the use of debt might “crowd-out” current donors since expansion is undertaken at the behest of the organization (and not due to donor demand for increased output), donors might have a preference for funding current output rather than past output, or because of concerns that the nonprofit will be unable to maintain future programmatic output. These potential effects of debt on giving by individuals have not been the focus of research to date. The primary data for this paper come from the “The National Center on Charitable Statistics (NCCS)-GuideStar National Nonprofit Research Database” that covers fiscal years 1998 through 2003. The digitized data cover all public charities required to file the Form 990. The final sample contains 460,577 observations for 105,273 nonprofit entities. The results for the full sample support a “crowding-out” effect. The analysis is repeated on a subsample of nonprofits more dependent upon donations, following Tinkelman and Mankaney (2007). The restricted sample contains 121,507 observations for 36,595 nonprofit organizations. The results for the subsample are more ambiguous: secured debt has little or no effect, while unsecured debt has a positive effect. The empirical analysis is then expanded to test whether nonprofits with higher than average debt levels have different results than nonprofits with below average debt levels. The results suggest that donors do remove future donations when a nonprofit is more highly leveraged compared to similar organizations.
Nonprofits may fear that the use of debt signals mismanagement or bad governance, worrying that donors will punish the organization by removing future donations. The results presented here suggest a more complicated relationship between nonprofit leverage and donations from individuals than this simple calculus. On the one hand, increases in secured debt ratios (from mortgages and bonds) seems to reduce future contributions, possibly because donors are wary of government or lender intervention in the nonprofit’s management, or possibly because of the lack of flexibility inherent in repaying such rigid debt. On the other hand, unsecured debt, while more expensive, seems to crowd-in donations, even at increasingly higher levels when compared to similar organizations. There are at least two important conclusions from this analysis. First, during times of fiscal stress, nonprofits are often tempted to use restricted funds in ways inconsistent with donor intent simply to ensure organizational survival. Rather than violate the trust of certain donors, the results here suggest that nonprofits would be better off utilizing unsecured (possibly short-term) borrowing to smooth out cash flow needs. This option, however, assumes that nonprofits have access to some type of borrowing which is not true for many organizations. A second conclusion one might draw, therefore, is that policy considerations should be made to expand access to debt for nonprofits. The results here suggest that certain types of unsecured debt might in fact draw in additional resources, allowing nonprofits to leverage these borrowings for additional resources. By encouraging this type of policy option, nonprofits would not only gain access to increased revenue sources, but might be able to maintain programmatic output during times of fiscal stress.

Abstract

This paper examines the question of whether there is any correlation between the prevalence of nonprofit organizations with property, plant, and equipment exempt from property taxation and the property tax burden for homeowners. Data from the Tax Foundation and Internal Revenue Service was used to analyze general-purpose local governments within larger counties (populations greater than 65,000) in the United States for years 2005 and 2006. Several econometric specifications were used to estimate homeowner property tax burden as a function of the value of nonprofit fixed assets, government tax structure characteristics, and a series of control variables. Our estimates suggest that county geographies with greater presence of nonprofits tend to have higher homeowner tax burdens on average. Specifically, the value of nonprofit tax-exempt fixed assets within a county geography that is 10% above the mean of $15.4 million is generally associated with a median property tax paid by homeowners as a % of household income that is between 0.0009% and 0.0154% above the mean or between $2 and $24 higher on average. The median property tax paid as a % of homeowner’s home value would be between 0.0006% and 0.0069% above the mean or between $3 and $12 higher on average. Overall, we find a strong, positive correlation between nonprofit fixed assets and property tax burden for homeowners at the local level.

Abstract

Notwithstanding its importance as an internal source of financing, no analysis has examined why nonprofits choose to retain unrestricted net assets. As restricted net assets might not be used as desired by the nonprofit manager, unrestricted net assets are a more accurate definition of available internal resources than total net assets. This article tests several theories that might motivate nonprofit accumulation of unrestricted net assets. Furthermore, the empirical strategy employed allows an analysis of unrestricted net asset accumulation over time and overcomes several significant statistical estimation issues. The results suggest that nonprofits target profits and seek their accumulation over time, although targets may be set at very low levels. Furthermore, the results suggest that the low levels of profits accumulated annually are for the purpose of reducing organizational financial vulnerability. The results also suggest that many nonprofits behave as if leverage and unrestricted net assets are substitutes.

2011

Ives, M., Calabrese, T.. Creating Deficits with Balanced Budgets. Journal of Government Financial Management 60(4): 38-44
Calabrese, Thad.. Do Donors Penalize Nonprofits with Wealth Accumulations?. Public Administration Review 71(6): 859-869
Calabrese, Thad., Ely, T. L.. Money for Nothing? Pension Obligation Bonds and Government Spending. Public Finance and Budgeting Section, Western Social Sciences Association
Abstract

Public officials have recently sought increased regulation of financial disclosures from not-for-profit organizations as a means of improving accountability with the public. One objective of this study is to examine whether not-for-profit entities already subject to audit requirements submit financial reports in compliance with GAAP. Further, since the majority of not-for-profit organizations are not subject to public audit mandates, this study also ascertains whether other market actors such as donors monitor and demand accrual-based financial information. The empirical analyses indicate that not-for-profit organizations subject to public audit mandates are largely in compliance with GAAP, although a significant minority of organizations subject to state requirements is not; further analyses suggest that external oversight significantly influence the use of accrual reporting. Models are also tested on a subsample of not-for-profits that switched from cash to accrual reporting, with the results suggesting that increasing public and market oversight have a significant effect on the decision to switch methods. The overall results suggest that public and market actors demand accrual-based financial reporting from not-for-profit organizations.

Calabrese, T., Ely, T. L.. School District Pension Bond Issuance and the Influence on Spending Behavior. Association for Education Finance and Policy
Abstract

The static trade-off and pecking order capital structure theories are analyzed and applied to nonprofit organizations. In addition, this paper also considers how nonprofits adjust their leverage over time. The analyses consider the unique role of donor-restricted endowments in the decision to borrow, as well as different types of borrowing by nonprofits. The results indicate that nonprofit capital structure choices are best explained using the pecking order theory, in which internal funds are preferred over external borrowing. Further, nonprofit endowment is not found to increase leverage. Despite the unambiguous findings across varying definitions of leverage, the results also suggest that a “modified pecking order” is a more apt descriptor of nonprofit behavior.

2010

Abstract

The brief’s key findings are:

  • Some state and local governments issue Pension Obligation Bonds (POBs) to raise cash to cover their required pension contributions.
  • POBs allow governments to avoid increasing taxes in bad times and could reduce pension costs, but they pose considerable risks.
  • Those who issue POBs are often fiscally stressed and not well-positioned to handle the investment risk.

2009

Abstract

Budgeting is the core financial task in subnational governments. Although limited research has outlined the relationship between the annual operating budget and public pension funds, the existing literature has not considered the manner in which financial resources are measured within government budgets, how this measurement of resources might affect public budget decisions, and how the interaction of the budget with the actuarial model can lead public budget managers to engage in financially damaging transactions such as pension obligation bonds. This paper fills this void, and argues that the short-term nature of public budgeting coupled with the actuarial model's use of expected investment returns rather than a market discount rate for pension liability measurement causes governments to shift risk to future generations. This paper also recommends that a blended discount rate for pension liabilities be considered more appropriate when governments fund their annual pension expenditures using debt rather than equity (such as tax revenues).

Calabrese, Thad.. The Determinants of Nonprofit Net Assets. Faculty Research Seminar, School of Public Affairs
Calabrese, Thad.. Why Do Nonprofits Retain Unrestricted Net Assets? Evidence from Panel Data, and Policy Implications. Association for Research on Nonprofit and Voluntary Action
. Why Do Nonprofits Retain Unrestricted Net Assets? Evidence from Panel Data, and Policy Implications?.
Abstract
The authors of this policy brief document that in the decade since the Open Society Institute awarded a challenge grant to TASC to encourage the creation of sustainable public funding streams for after-school programs, every level of government has dramatically increased public funding for comprehensive after-school programs in New York City.
The authors note that the City of New York has contributed an increasingly larger share of public support since the city launched its Out-of-School Time Initiative to provide kids with academic, cultural and recreational activities after school and during summers. The authors estimate that eight times more kids in kindergarten through high school attend after-school programs today than in 1998. "Over the past ten years in New York City," they conclude, "public support for after-school programs has become one of the foundations of service for children and youth."
Calabrese, Thad.. What Determines Nonprofit Net Assets?. Association for Public Policy and Management