Future Trends in Israel’s Nonprofit Sector: A Review of the Top Headlines in 2012
We Must Look To The Past To Know The Future (George Santayana)
by Shuey Fogel
The headlines in 2012 were all about looking to the future.
While there were some stories with immediate consequences, the effects of most of the headlines will only rear their heads in 2013 (at the earliest). Change in the wind? Yes. On the ground, not so much.
So what’s in store for Israel’s global nonprofit sector? The following are nine of the top news stories of 2012 and their significance:
9. Charities Advocate for Israel’s Nonprofit Sector in the Upcoming Elections
The end of November saw Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] release a primer (Hebrew) on the contribution to Israel by its nonprofit sector.
The goal of the one-page summary was to educate citizens in the hopes that they would support candidates that expressed an interest in supporting, developing and strengthening Israel’s voluntary sector.
While the effort didn’t seem to garner public support, it was definitely a step in the right direction and reminded me of the much more successful efforts in the United States.
This recent effort in Israel is very much in its infancy but with the election results showing that Israel is ready for a change, I’m very to interested to see if charities decide to band together and capitalize on it for the next elections.
8. Private-Philanthropy Database to be Initiated by the Statistic Bureau and Yad Hanadiv
While a Yearbook is great for organizational statistics (see below number 4), it does nothing to analyze those that are actually doing the giving, the donors. Thus enters Yad Hanadiv (The Rothchild Foundation) and Israel Statistics Bureau who announced in late October (Hebrew) about a joint project to establish a database of giving statistics.
Currently, the numbers are gleaned from a hodgepodge of places, including: automatic reports generated from incoming money from foreign sources; data submitted by the Tax Authority on private and business donations; and various surveys done by private and government bodies.
The new initiative will gather data from three primary sources: data submitted by the Tax Authority on private and business donations (a previous contributor); information transferred from Guidestar Israel (see below number 4); and a survey to be conducted on 300 sample charities. Building the database will take a year from when the first pieces of information will be transmitted (approximately towards the end of 2013).
The new initiative database will:
- map donations from individuals and businesses, originating from both within and outside Israel
- and will provide information on the sources, amounts, and destinations of the philanthropy received by Israeli charities.
It could be that the goal of this project is to mimic the Giving USA Report published yearly, whose vast data is used to “track reports of similar types of charity, train board members, assist in setting organizational strategy, identify funding gaps, and teach about current trends.”
With the continuous complaints about Israel’s lack of formal philanthropy, this is an important initiative indeed.
7. Acknowledgement that it’s Time to Explore New Organizational Structures for Charities
Two announcements from the Israeli government signaled that the powers-at-be are realizing that charities come in all different shapes and sizes; something that other countries have known for quite some time. (In America, the B Corporation and L3C legal entities are great examples.)
With traditional fundraising drying up, alternative funding sources and the entities that can support them are crucial.
In late November, The Third Sector Roundtable run by the Prime Minister’s Office expressed its support (Hebrew) for the creation of Socially-Minded Businesses in Israel. The directive will provide the basis necessary for legislation, regulations, and a the fiscal structure necessary for the success of such an entity. (Similar strides were recently made in the States when the IRS declared that social investments or PRI’s would be considered tax-deductible.)
This headline followed an earlier one in September that announced that the Israeli government had created an official Request for Information (RFI) on the establishment of a Social Entrepreneurship Fund.
As exciting as this sounds, with the recent Israeli elections and reports of overspending, deficit explosions and subsequent looming budget cuts, all this great talk might be just that: talk.
6. Interior Ministry to Reward Local Authorities on Social Activities
Real change needs to come from within, despite the sometimes much-needed external push.
Misrad Hapnim (Israel’s Interior Ministry) announced (Hebrew) that they would give financial rewards to those Local Authorities that instituted social programs that meet eight predetermined criteria. Officials were quick to point out that the type of programming they are looking for is attainable even for smaller and more cash-strapped local authorities and wouldn’t require infusions of large capital.
In addition to changes how local governments approach and prioritize social programming (hopefully), this announcement will hopefully galvanize charities into researching further ways to collaborate with the municipalities in which they operate.
Could this actually usher in a new era of government and charity collaboration? (And yes, I’m ever the optimist.)
5. Midot: Acting More Like a Regulator than a Social Cause
The Israeli nonprofit organization Midot made headlines a few times in 2012.
None more explosive than in September after its CEO in an interview with Haaretz/TheMarker, one of Israel’s leading business dailies, called the majority of Israel’s charities ineffective. The article was subsequently used to confirm the public’s worst fears in the countries’ nonprofits.
This story followed Midot’s pilot program with Israel’s Chashav Haklali (Hebrew) where Midot essentially served as the gatekeeper to the government’s coffers. A program that many feared would be misused by the government as an excuse to refuse allocation of grants.
Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] and the Hitarginut Hamankalim [The Organization of Nonprofit CEOs] banded together in September to issue a letter (Hebrew) defending against the claims of lack-of-effectiveness. The letter was followed by a call for Midot to act more like a “social cause and less like a regulator.”
In the past years, Midot has made inroads with big companies and Israel’s elite (in addition to the government as was demonstrated above), convincing them of the organization’s critical mission.
Recent headlines seem to suggest that the organization’s effectiveness is not universally accepted. Midot is at a fork-in-the-road and only time will tell which path they will choose and how Israel’s nonprofit sector will be affected accordingly.
4. Creation of Israel’s First Nonprofit Sector “Yearbook”
At the June Guidestar Israel conference, a “yearbook” (or Shnaton as its referred to in Hebrew) of Israel’s nonprofit sector was released.
Using the 12 internationally recognized nonprofit classifications (see pages 18-22), the report allows Israel to analyze its own sector, as well as, compare it to others around the globe. The hard numbers (many of which were unattainable until now) shed light on many important statistics and were used by one reporter to combat the myth that high salaries are prevalent among Israel’s charities.
The yearbook released in June was Israel’s first. Coming years will not only continue to deliver critical data but will provide the basis for trend-watching and true analysis.
More articles on the Yearbook can be found on NPTech’s (the organization that manages Guidestar Israel) site, here (Hebrew). Don’t miss this one either: Aren’t You Tired of Suspecting Charity CEO’s? (Hebrew)
3. Supreme Court Rules that Charities Need to Pay Tax on Land Sales
The city of Ashkelon sold 53 plots of land to private individuals. The city charged the individuals VAT (Value Added Tax) but didn’t transfer the VAT to the Tax Authority because it was granted a VAT exemption by the Tax Authority – as most Israeli charities do. Even though the exemption was granted to the municipality because of its “social” status, the Tax Authority claimed that the transaction was a commercial and not social, thus not included in the exemption.
In October, Israel’s Supreme Court ruled in favor of the Tax Authority (Hebrew), in essence ruling that all charities will need to pay VAT (currently 17%) when they sell property they own. Until then, it was a “Don’t Ask, Don’t Tell” policy that allowed those institutions that didn’t report tax they had collected as free from VAT payments to the Tax Authority.
In Israel, many organization received land from the government or from bequeaths – land that is not needed by the charity. Many have already sold portions of their property, while most still maintain this “extra” real-estate.
The multitude of charities and other exempt organizations affected will now have to take VAT into consideration and rethink their plans.
2. One Year for the Tax Authority to Rethink Tax-Deductible Eligibility
Many people, including myself, have complained about the lack-of-clarity facing charities that are seeking tax-deductible status in Israel, known as Se’if [Paragraph] 46.
In addition to the basic requirements associated with applying to become a Mosad Tziburi [Public Institution], the Minister of Treasury prepares a recommendation to a Knesset sub-committee that must approve the organization’s request. The problem, as Prof. Nissan Limor pointed out, is that applicants do not know beforehand what is exactly required of them. Furthermore, Limor notes that the procedures are gathered as guidelines that have not been incorporated into any legislation.
In August, Israel’s Supreme Court ruled (Hebrew) that the Treasury has one year in which to formulate clear criteria for receiving Se’if 46.
According to Guidestar’s Yearbook released in June of this year, only 12% (4,280 out of 34,398) of charities have tax-deductible status.
It is hopeful that new, clearer guidelines will both encourage more charities to apply for tax-deductible status and give those organizations struggling to get an approval the boost they need to finally be granted their well-deserved eligibility.
1. Corporations Authority Releases for First Time Instructions for Business Activities by Nonprofits
The world of nonprofit financing has been changing for a while, especially after the global economic. However, regulations here in Israel haven’t been keeping pace. Actually, they’re trailing far behind.
But maybe not anymore?
A funding method making headlines in recent years is business related income generated by the nonprofit itself, as opposed to strict reliance on donations.
Maybe saving the best for last, Israel’s Corporations Authority (CA), which governs the Registrar of Charities, released in November (Hebrew) for the first time instructions for “business” activities by charities. The guideline’s four sections cover:
- How decisions should be reached
- Relevant considerations concerning business activities
- Collaboration with other nonprofit or for-profit entities
- Restrictions of business activity
While not perfect, the guidelines are a work in progress. More importantly, they are signal that the regulators are realizing that charities are multifaceted, complex, economic organisms and not simply operational sub-contractors.
I’ve got high hopes for 2013. Looking forward to joining everyone for the ride.
What were your impressions? Which headline will reverberate the most for years to come? Can you suggest a headline that wasn’t included in the list?
Disclaimer: This blog houses my personal opinions and is for informational purposes only – not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.
Shuey Fogel is a nonprofit professional turned banking specialist. He is currently Director of Solutions for Nonprofits for an Israeli Bank. Shuey shares relevant conversations, articles, and experiences on his blog, nonprofitbanker.com.