Ezra Klein - The $900 billion mistake

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by Ezra Klein

Barack Obama has not given much in the way of specifics for health-care reform. Few policies have been nonnegotiable and virtually none have been dictated. The exception is a number that was neither nonnegotiable nor dictated, but was received on the Hill as if it was both, and has come to dominate the health-care reform process: $900 billion.

The number sprang from Obama's September speech laying out his own plan on health-care reform. "Add it all up," he said before a joint session of Congress, "and the plan I'm proposing will cost around $900 billion over 10 years." The plan he proposed, however, did not mention the price tag, and the president did not include any specifics about how that price tag was reached. Nor did the president's language actually set a hard ceiling. "Around $900 billion," when you're talking about internal modeling for a plan that the Congressional Budget Office hasn't seen, is not the same thing as a $900 billion limit.

This was not like Bill Clinton waving his pen and promising to veto any bill that did not reach universal coverage. But that's how it was understood on the Hill. "It made things complicated," sighed Rep. George Miller. "We were working off of one track and then we had to switch." The Senate isn't having an easier time of it. Reid's office is waiting for the Congressional Budget Office to return an official score of their health-care reform bill. If it's under $900 billion, they will move forward with it. If it's over $900 billion, they will revise it, and send it back to CBO for a new, and hopefully lower, score.

There are three questions here. The first is how the Obama administration came up with the $900 billion estimate. The second is why they included it in their speech, after so relentlessly avoiding specifics until that moment. And the third is why the Hill embraced it as a hard limit rather than a general proposal.

The answer to the first is a mixture of policy and politics. Health-care reform was embattled. The Gang of Six was breaking apart. There were those in both the White House and the Senate who wanted to radically scale back the ambitions of the bill. Amidst this, members of the White House's policy team managed to model a plan that they considered pretty good and that came in at about $900 billion -- a bit lower than what the House had proposed, but a bit higher than what the Senate Finance Committee was considering. Further, there didn't look to be support for revenues that reached much beyond $900 billion, at least in the Senate. This wasn't a new limit so much as an articulation of a boundary that already existed.

It was, they hoped, something of a political sweet spot. It calmed some moderates by showing that the White House was willing to push back on the ambitions of more liberal members of Congress and pleased some liberals by showing that the White House wasn't letting the chaos of August distract them from the need for an ambitious bill.

But once that number entered the process, it began guiding the process. Sources on the Hill aren't really clear how the sum transformed from an estimate of the president's plan to a hard limit for their plan. Few recall that the original language included the qualifier "around." Even so, the number stuck. It strengthened the hand of moderates in both chambers and allowed them to create a ceiling. It also seemed clear that if the White House was comfortable with $900 billion, then it wasn't going to fight to protect the spending in any bill that exceeded that cap, so there was no point in the liberals bothering to push the issue.

The problem is that the number, which was chosen at a point of political weakness for health-care reform and the Obama administration, is too low. Most experts think you need closer to $1.1 trillion for a truly affordable plan. Limiting yourself to $900 billion ensures that the subsidies won't be quite where you need them to be, and means that virtually every spare dollar has to be spent strengthening them. If you want to add $30 billion to the bill creating coordinated care teams across the country -- a project that could transform chronic care in this country and eventually save many times its start-up cost -- there's little budgetary flexibility even if you could find the revenue, because each dollar is in a zero-sum competition with each other dollar so the entire plan comes in under the limit.

The second problem is that it's not clear what the number includes. Obama's plan, for instance, didn't say a word about the Medicare payment fix, which will cost more than $200 billion, and which many commentators argue should be included in the cost of the plan (I don't agree with them, incidentally). It didn't include specific delivery system reforms. It didn't show its own modeling, so it's hard to say whether the subsidies it envisioned were sufficient, or whether CBO would score the proposal at a higher, or lower, cost.

The reason for this ambiguity is that the limit was never really a limit. It wasn't attached to a plan that was scored by the Congressional Budget Office. It didn't refer to an actual number, or define how big of a boundary was meant by the qualifier "around." It didn't specify what it included. But to the detriment of the bill, it has become a hard ceiling, reducing both the potential affordability of the legislation and the flexibility of Congress to add delivery system reforms that could save money or improve health in the long run. For that reason, Congress should go back to Obama's original speech and follow the president's original lead. A process working towards a bill that's "around $900 billion" is a lot better than a process that's arbitrarily decided to produce a bill under $900 billion.

It's a Bird, It's a Plane, It's Pork! - BusinessWeek

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Boeing's C-17 cargo aircraft cost $250 million apiece. The Pentagon says it has plenty. But it's nearly impossible for Obama to kill a project that provides jobs in 43 states

By Ben Elgin and Keith Epstein

President Barack Obama and Defense Secretary Robert M. Gates want to leave the Cold War in the past—finally—and reshape the U.S. military into more of a counterinsurgency force. They have made reforming weapons acquisition a major priority, saying that some hardware designed for battling Soviet armies or other massive foes in vast open-field clashes ought to be replaced by lighter, less expensive gear. The Administration has pared billions from the budget for the Lockheed Martin (LMT) F-22 fighter, a super-sophisticated plane conceived in the 1980s for dogfights against Moscow's best. The Pentagon has also reined in a sprawling high-tech infantry project called Future Combat Systems that Boeing (BA) oversees. All told, a half-dozen major weapons systems have been eliminated for an estimated savings of more than $100 billion over coming decades.

But it's not like military spending is actually going down. At a projected $107 billion for 2010 alone—a 5% rise over this year—the Pentagon's base budget for planes, ships, missiles, and guns has grown more than 50% since 2000. Reforming and redirecting military procurement always riles members of Congress trying to protect jobs in their home districts. Lawmakers are teaming up with Lockheed, Boeing, and other defense contractors to push back fiercely on certain targeted programs, even when the Pentagon says it doesn't need the weaponry in question. In some areas, organized labor has joined the fight.

The C-17 Globemaster offers one illustration of successful opposition to the Obama-Gates push for control of weapons spending. C-17s are large cargo planes produced by Boeing that cost $250 million apiece. They have been used heavily since 1993 to transport troops, tanks, and supplies. Every year since 2006, the Pentagon has said that it has enough C-17s. And every year, Congress overrules the military and authorizes funds for additional planes. In October the Senate approved $2.5 billion in the 2010 budget for 10 more C-17s, which would bring the fleet to 215.

"It's about political engineering," says Mandy Smithberger, a national security staff member of the Project on Government Oversight, a Washington nonprofit. "Companies design weapons systems to make them difficult to kill."

The C-17 by most accounts has served the Pentagon reliably and well. The cavernous Globemaster is flying in both Iraq and Afghanistan. But the real reason Congress wants more of them has little to do with military need. Boeing has built the C-17's industrial base for political survivability.

The company has spread manufacturing across no fewer than 43 states. C-17 production lines employ more than 30,000 workers, many of them relatively well paid by factory-wage standards. Many of those jobs would be at risk if C-17 work ground to a halt.

The White House understands the challenge. "The impulse in Washington is to protect jobs back home, building things we don't need at a cost we can't afford," President Obama said in August in a speech at the Veterans of Foreign Wars Convention in Phoenix. "The special interests, contractors, and entrenched lobbyists—they're invested in the status quo, and they're putting up a fight."

Enthusiasm for the Globemaster crosses political lines. "We're fighting two wars and meeting humanitarian needs; we need these planes," says Senator Kit Bond (R-Mo.). "It is a defense industrial-base issue, too. It produces jobs in 43 states. But that is secondary. We wouldn't push that unless there is a real need." Boeing's defense business has its headquarters in St. Louis.

Bond, Senator Barbara Boxer (D-Calif.), and 16 colleagues began circulating a letter in April urging members of the Senate Appropriations Committee to keep funding the plane despite clearly stated objections from the White House and Pentagon. In California, C-17 production employs 5,000 workers at a final assembly plant in Long Beach.

Bond's fellow Missourian, Senator Claire McCaskill, a Democrat, however, evinced ambivalence in comments to the media earlier this year about earmarking money for more Globemasters. Boeing noted that she didn't sign the letter to the Appropriations Committee. So the company mobilized to change her mind.

The aircraft manufacturer convened a strategy meeting with local labor leaders in mid-spring at its St. Louis offices. George C. Roman, a Boeing vice-president for government operations, helped lead the discussion. A key challenge described by the Boeing side was the need to shore up wavering support from legislators, including McCaskill, according to Robert A. Soutier, president of the Greater St. Louis Labor Council, who attended the gathering.

Shortly after the meeting, Soutier criticized McCaskill in the St. Louis media, questioning her support for thousands of local jobs. McCaskill responded quickly. She defended her C-17 bona fides and in May announced she was sending a letter to Obama and Gates emphasizing her backing for the Boeing cargo aircraft.

Since then, she has showed up at machinist rallies, met Boeing officials, and spoken out forcefully on the plane's behalf. Adrianne Marsh, a spokeswoman for McCaskill, called the earlier discord "a misunderstanding" and says the senator has advocated the program all along. McCaskill "believes the C-17 can stand on its own and compete for these dollars based on its merits," says Marsh.

Soutier says that communication has improved between Boeing and McCaskill and that he's pleased with the senator's support for the C-17. A Boeing spokesman declined to discuss the company's lobbying but said in a prepared statement: "We routinely meet with our employees, their representatives, elected officials, and other key stakeholders to provide updates on our business operations." The spokesman added: "We greatly appreciate the support the C-17 continues to receive. We look forward to continuing to work with both our customer and the Congress to ensure this valuable airlifter is available to support our war fighters and our nation's future airlift requirements."

In late September, as Congress restored money for 10 additional C-17s, the Administration stated that "it strongly objects to" the funding. White House spokesman Thomas Victor told BusinessWeek: "The President never thought this was going to be easy, but he and Secretary Gates are committed to pushing for these reforms."

Senator John McCain (R-Ariz.), a prominent critic of Pentagon spending, went to the Senate floor on Oct. 5 to make a last-minute effort to strip funds from the defense budget for the new C-17s. "One would have expected the President and Secretary Gates to be outraged," he said. "However, we have heard barely a word of opposition from them." The next day, McCain's motion was defeated, 68 to 30.

John Murtha (D-Pa.), the powerful chairman of the House Defense Appropriations Subcommittee, said on Oct. 21 that he expects the fiscal 2010 budget to provide for the 10 additional Globemasters. He urged Boeing to trim the price of the plane to about $200 million each, but it remains to be seen whether the manufacturer will lower its bill.

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Machinists Throw a Wrench

While it fights to preserve the Pentagon budget for more C-17 cargo planes, Boeing is struggling with International Assn. of Machinists leaders over a proposed no-strike agreement in connection with the 787 passenger liner. According to the Seattle Times, talks are "deadlocked and hindered by distrust on each side." The Machinists have said they would agree to a no-strike deal through 2020 if Boeing guarantees a second 787 assembly line in Everett, Wash., among other conditions, the Times reported.

For more on Boeing's labor situation, go to http://bx.businessweek.com/Boeing/reference/

Elgin is a correspondent in BusinessWeek's Silicon Valley bureau. Epstein is a correspondent in BusinessWeek's Washington bureau.

The Perfect Storm

By Eyal Press

This article appeared in the March 30, 2009 edition of The Nation.

In the days between Christmas and New Year's Eve, Anthony Romero, executive director of the American Civil Liberties Union, sat at his desk in Lower Manhattan and reached out to people who had lavished generous donations on his organization during the long, benighted tenure of George W. Bush. It was a heady moment: the era of Dick Cheney, John Ashcroft and Alberto Gonzales was winding to a close, and Barack Obama was about to assume office, having vowed to rescind some of his predecessor's more egregious assaults on civil liberties.

But Romero wasn't phoning his supporters to share the joy--he was calling to plead for cash after a season (actually, several seasons) of thwarted solicitations. Throughout the spring and summer, would-be donors had explained, over and over again, that they were too busy writing checks to the Obama campaign. By the time Obama mounted the stage to deliver his acceptance speech in Chicago on election night, many had become preoccupied with something else: the implosion of the economy. As Romero worked the phone from his office on the nineteenth floor of the downtown high-rise, around the corner from the New York Stock Exchange, he could feel the aftershocks of the collapse.

"I'll come back, but I lost it all," one longtime donor told Romero.

"I love you guys, but it's gone--all gone," said another.

The most expensive presidential campaign in history and the cataclysmic financial meltdown of the past few months combined to produce a "perfect storm," Romero told me recently. The storm blew a $19 million hole in the ACLU's budget, resulting in a hiring freeze and the cancellation of various projects, followed by the announcement, in January, that 10 percent of the national staff was being let go. Employees with decades of experience were told to clear out their offices; no department was left unscathed.

Founded in 1920, the ACLU boasts a membership of 530,000 and assets of more than $200 million. However dire the economic downturn gets, Romero, who has weathered his share of controversy at the ACLU but also presided over a period of impressive achievements and growth, can rest assured his organization will be around in a couple of years. It's an assumption a growing number of his peers in the nonprofit world can't make. At a forum in New York City in November, Paul Light, a professor of public service at New York University, predicted that "at a minimum" more than 100,000 nonprofit organizations would be wiped out in the next two years. Light asked the audience members whether any of them had tuned in to the recent hearing in Washington on the impending nonprofit upheaval. The room fell silent. Light then admitted he'd missed the deliberations as well, because, alas, there hadn't been any. "We should demand a hearing immediately on the state of the nonprofit sector--immediately," he declared.

Not everyone believes the fallout will be quite so cataclysmic--historically, the nonprofit sector has proved surprisingly resilient, even growing during some recent recessions--but the scale and scope of the current downturn is clearly different. And its reverberations will likely extend far beyond the world of high-profile advocacy organizations like the ACLU. From the arts to education, soup kitchens to housing organizations, nonprofits perform an array of functions that shape the texture of daily life in communities across the country, often by helping people whose situations were precarious even before the economy crashed. Now, with foundations watching their endowments shrivel, many individual donors maxed out and states across the country staring at massive budget deficits, nonprofits are scaling back their services at the very moment when the need for them is escalating.

The Greater Hartford Legal Aid agency occupies the third floor of a boxy glass-and-concrete building a few blocks down from the University of Connecticut School of Law. Its executive director, Elam Lantz Jr., doesn't like to talk about the ripple effects that the financial crisis has had on his agency. "I would not use the word 'ripple'--it's more like a tsunami," Lantz, a mild-mannered man with a clipped gray beard and wire-frame glasses, tells me. "It's more dire than it's ever been--this is a sharp plummet, not a decline."

The main cause of the sharp plummet is a seemingly unrelated development--the decline in interest rates to near zero--that has taken a disastrous toll on legal aid organizations, which, in Connecticut and many other states, receive a substantial share of their funding from the interest on temporary trusts that lawyers hold for clients while carrying out transactions such as real estate deals. This might seem like an odd way to finance such an essential social good, and it is, but the evisceration during the Reagan era of the Legal Services Corporation, the federal agency created in the 1970s to fund legal aid programs and a longstanding target of Republicans, forced states to find creative alternatives. Back when interest rates were 3 to 4 percent, the creativity seemed to be paying off. Now that they've nose-dived, agencies from Ohio to Oregon are scrambling to survive. In Connecticut, the interest on lawyer trusts generated $21 million in 2007; the figure will plunge to under $4 million this year. At Greater Hartford Legal Aid, six attorneys have been let go and more cuts may soon follow. "I have to raise $500,000 somehow," says Lantz glumly, "and then spend some of our operating reserves. That will take us to 2010, and we're just going to have to take it one year at a time."

All this means an already overburdened legal aid system will be that much less likely to help people like Evelyn Colon. A single mother with two young daughters, last year Colon dialed the 800 number in Connecticut that refers low-income residents to attorneys who might be willing to represent them. Colon had just received an eviction notice, even though she'd kept up with her rent, after her landlord's property went into foreclosure. Her case fell to Stephanie D'Ambrose, an attorney at Greater Hartford Legal Aid. D'Ambrose discovered that the author of the eviction notice, Fannie Mae, which weeks earlier had been bailed out by the government, was obligated to treat renters more leniently under the terms of the conservatorship it had entered. After the Hartford Courant ran a story about the case, calls began pouring in from lawyers across the country representing people in similar situations. The mounting legal challenges eventually prompted Fannie Mae to announce a moratorium on all post-foreclosure evictions. At the time, there were 10,000 such cases pending nationwide.

D'Ambrose, a former Peace Corps volunteer whose desk is cluttered with manila folders and thank-you cards from various clients she's served, beams with pride when talking about the case. But she hasn't had much time to savor her success: she is among the lawyers at Greater Hartford Legal Aid who were recently laid off, and she is searching for work while trying to stomach leaving an agency swamped with need. "We already turn away a lot of people; now we'll turn away that many more," she says.

Unlike D'Ambrose, Sudha Acharya, executive director of the South Asian Council for Social Services, hasn't had to thumb through any help-wanted ads lately. She's just taken a 50 percent pay cut that, along with a 15 percent cut imposed on her staff, has enabled her agency to keep its doors open, for now. Located on the ground floor of a brick building on a noisy commercial drag in Flushing, Queens, SACSS is the sort of agency most at risk of not making it through the downturn: a shoestring operation that could disappear tomorrow with few people noticing, save for the hundreds of South Asian immigrants who rely on it for job training courses and healthcare workshops that help clients navigate a byzantine system even many native New Yorkers find impenetrable. (Among people in the state without health benefits, fully half are eligible but either don't know they are or can't figure out how to apply.)

Acharya says her organization stays afloat on a mix of foundation support, corporate donations, individual contributions and community funds but is seeing money from all sources dry up. The agency recently had to scrap an English-language class it had been offering in the Bronx; it has kept other services intact despite receiving no money for them. I ask her who else in her circles is feeling strained. "Everybody," she says with a sigh. One of the groups with which Acharya's agency partners is the Community Service Society (CSS) of New York, a 160-year-old advocacy and direct service organization for low-income residents. Its president, David Jones, describes the forces that are making the work of charitable groups like his seem like an increasingly Sisyphean task: on the one hand, cash-strapped cities and states slashing programs; on the other, private foundations reducing outlays by as much or more. Jones's colleague Frank Kortright works with a network of nonprofits that help tenants in New York City avoid eviction. The network has been fielding more and more calls lately from high-income residents it rarely heard from in the past. Yet CSS recently had its city funding sliced in half. Jones says similar cuts are "in the offing" from foundations. He sits on the board of one that "just voted for a 60 percent cut in their amounts."

Some of the losses that soup kitchens, homeless shelters and job training centers are experiencing may soon be offset as money from the stimulus bill trickles down from Washington to agencies that contract with state and local government, says Lester Salamon, director of the Center for Civil Society Studies at Johns Hopkins University. But the relief won't spread to everyone: cultural institutions such as museums and orchestras rely mainly on charitable donations and the sale of tickets and subscriptions. Many are canceling exhibits and shows. The situation is similarly dire for advocacy organizations that don't take government money and are now competing for a limited--in some cases, nonexistent--pool of funds. A few months ago, Madeline deLone, director of the Innocence Project, which has pioneered the use of DNA technology to overturn wrongful convictions, was sitting in a meeting when her communications director burst through the door. It was mid-December, and the details of Bernard Madoff's spectacular $50 billion Ponzi scheme were just coming to light. On the phone was a reporter who wanted the Innocence Project's reaction to the revelation that among Madoff's victims was the JEHT Foundation, a leading funder of criminal justice reform. The news was a surprise to deLone, who rushed to her computer, clicked on an e-mail that had landed in her in-box that morning and learned that nearly half the Innocence Project's foundation support--12 percent of its overall budget--was gone. With it went the possibility that some prisoners serving time for crimes they did not commit would ever get the chance to prove it. "What we do is DNA testing, and many states don't have evidence-retention statutes," says deLone, "so the longer it takes for us to get to cases, the less likely the evidence will be there. Clearly, there will be cases where the biological evidence we could have tested will be destroyed between today and the time we can get to the case."

Elisa Massimino, executive director of Human Rights First, learned about the collapse of JEHT a few days after receiving a multiyear, $2.4 million grant from the foundation. "It was an earthquake," she tells me. Days later came the equally jolting news that the Picower Foundation, with an endowment of $1 billion, was also shutting down, likewise courtesy of Madoff. It had just pledged $250,000 to Human Rights First to fund a program for indigent refugees seeking asylum. "We're not disappearing, but we've got to find a way to do more with less," says Massimino. "Every organization I've talked to is going through this."

Thanks to the transformation of the political landscape, the work of many liberal advocacy groups has lately become easier. As the ACLU's Romero puts it, "Ashcroft never met with me; [Attorney General Michael] Mukasey never met with me." Now, he says, "the lines are hugely open...it's night and day." On the other hand, to the extent that their voices are muted because of a lack of resources, advocates of progressive change risk missing an opportunity that might not come around again. This is the concern of Gara LaMarche, head of The Atlantic Philanthropies, one of the largest, most socially progressive foundations in the country. LaMarche cites healthcare as an example. "If healthcare reform is going to pass, it will probably be this year," he says. "Healthcare is not something you can say, 'OK, it's a bad year; we'll put it off until 2010 or 2011'--it's now or never." On this and a host of other issues, the early months of the Obama administration are likely to be critical, which is why, despite losses suffered by his foundation's endowment, LaMarche plans to increase giving in the short term and to lend support to advocacy organizations reeling from the collapse of other foundations. As part of this effort, The Atlantic Philanthropies and the Open Society Institute agreed in December to match donations made by members of MoveOn.org to four groups--Human Rights Watch, the Center for Constitutional Rights, the Brennan Center for Justice and the Advancement Project--that had lost money through investment funds Madoff controlled.

The initiative, which raised $1.2 million, could inspire similar collaborations, though it just as easily may not. The Atlantic Philanthropies is a "spend down" foundation whose mandate is to give away all its assets by 2018. The Open Society Institute is the philanthropic arm of billionaire financier George Soros. Neither operates off an asset base designed to last in perpetuity, as is the case with many foundations that have seen their endowments shrink by 20 to 30 percent over the past few months. Some of these foundations are calling for the creation of a revolving-loans fund, backed by the government, that would provide urgently needed capital to social service and cultural institutions they can't support. Among the speakers at a recent Congressional briefing where this idea was aired was Diana Aviv, president of the Independent Sector, a coalition of foundations and charities, and Ford Bell, president of the American Association of Museums.

At a time when taxpayer dollars have been showered on banks, such a fund seems like the least the government could do for a sector whose leaders did not push for reckless deregulation or pay themselves exorbitant bonuses in recent years. But others argue that the responsibility for supporting endangered nonprofits should fall to foundations, which still command billions of dollars in assets and are accorded nonprofit status in part because it is assumed that self-preservation is not their primary goal. "Large institutions have choices," says Rick Cohen, former head of the National Committee for Responsive Philanthropy. "Do they husband their resources for their own purposes, or do they say, 'At this time we are called on to do more'? As social institutions, aren't they obligated to step up to the plate?"

Pablo Eisenberg, a professor at Georgetown University and columnist for The Chronicle of Philanthropy, echoes this view, pointing to Bill Gates. "In his recent letter, Gates said he's going to increase his giving to 7 percent of net returns," says Eisenberg, "yet the foundation world opposes mandating that everyone must give at least 6 percent because they have to exist in perpetuity. Says who? The frontline defense of nonprofits should be foundations that support nonprofits."

Some prominent foundations are heeding these calls. The MacArthur Foundation has disbursed $68 million in emergency grants to mitigate the subprime mortgage crisis in Chicago, boosted funding for the arts and front-loaded donations to human rights organizations even as its endowment has been depleted, a response Jonathan Fanton, its president, declines to depict as outsize in its generosity. "In 2003 we had about $3.8 billion in assets," Fanton tells me. "We got up to nearly $7 billion, and now we're at $5.2 billion. So the endowment is off maybe 20 percent, but if you see a starting point of 3.8 and you're now at 5.2, you don't feel so poor."

"We're giving back some of the extraordinary gains we earned," he continues, "and I think it's important for some institutions to hold steady and say, 'You can count on us; we're not going to reduce our investment in human rights, affordable housing, all the rest.' Maybe if other foundations did the same, it would begin to ease the fear and panic."

Some fallout in the nonprofit sector may be inevitable. And there may even be some benefit in forcing grant recipients to think hard about how to use their resources, a question that was easy to put off when the inflated stock market caused the level of giving to swell. Nonprofit agencies love to portray themselves as mission-driven operations staffed by underpaid idealists who never think about themselves, but the field also has its share of organizations that lack a clear mission and sometimes seem more concerned with burnishing their image than advancing social change or meeting their clients' needs. If such groups are forced to rethink their priorities or close their doors, it might not be a bad thing. "Has there been a nonprofit bubble along the lines of the market bubble?" asks Gara LaMarche. "Probably, and it's beginning to burst. Are there too many small groups? Are the bigger groups as creative and intelligent with their resources as they could be? Do turf issues tend to get in the way of joint ventures? These conversations may be driven by crisis, but out of it could come some more effective ways of doing things."

There is another question people tend to put off when too much money is swishing around--namely, how much even a wealthy society like the United States can realistically expect of the nonprofit sector. Few politicians in recent years issued warnings about the danger of relying too much on private charities to help the poor--these charities were, after all, the widely heralded alternative to the welfare system, whose defects came to represent the evils of big government. But today, the number of Americans receiving cash assistance through what remains of the welfare system has fallen to a forty-year low despite spiraling unemployment, a disparity that prompted Ron Haskins, a former Republican Congressional aide who helped craft the welfare reform law, to tell the New York Times that even he has become "concerned." The Times story appeared the day I met with David Jones of the Community Service Society, who shared this concern but was not surprised. "Responsibility for the poor was a government function in the Great Depression and Roosevelt's time," said Jones. "Now more and more people who lose their jobs turn to charity because we've off-loaded the responsibility to not-for-profits and made it so difficult and cumbersome for people to receive benefits."

A few days after I saw Jones, I spoke to Doris Koo, president of Enterprise Community Partners, a nonprofit that provides development capital and expertise to help build affordable low-income housing. Until the Reagan era, this, too, had been a responsibility of government. As funding for public housing dwindled, an alternative system of tax credits was established that offered investors incentives to float capital to nonprofit developers constructing housing for the poor. A $9 billion industry quietly arose that has poured the concrete, hung the drywall and placed hundreds of thousands of tenants in decentralized low-income housing units, hardly enough to meet the overall demand but a significant achievement that many view as an improvement over the large, crime-infested projects that used to be the only option for the poor.

Last year, however, the flow of capital suddenly dried up, turning a $9 billion industry into a $4 billion one and leaving nonprofit developers with half-finished projects that are in limbo. "What we've got are these diligent community-based organizations in New Orleans, Harlem and the Bronx that are in a twilight zone situation," said Koo. "They have a debt obligation, and they've acquired land that can produce no income because they can't finish the project--there's zero capital."

"So groups are panicking," she went on. "Some are coming to us to ask for extensions on loans, some are selling anything they can to raise capital to finish their projects--many of which are shovel-ready--and some have gone under." The story illustrates how much community-based nonprofits can achieve, but also how vulnerable they can be to the vagaries of the market. What might save some of those shovel-ready projects? As it happens, $2.25 billion will soon begin flowing to states through something called the HOME Investment Partnerships Program, which draws its funding from a much-vilified source that many bankers and investors have lately come to view in a more positive light: the federal government.

About Eyal Press

Eyal Press is a Nation contributing writer and the author of Absolute Convictions: My Father, a City, and the Conflict That Divided America (Picador)