Nonprofit sector needs to be better understood

By Todd Cohen

The nonprofit sector does not get enough respect.

The sector is big and sprawling, plays an indispensable role in society and the economy, and faces daunting financial and operating challenges.

Yet the sector generally is poorly understood and underappreciated.

A report prepared for Congress last fall by the Congressional Research Service gives a good snapshot of the sector’s magnitude and impact.

Released in November, “An Overview of the Nonprofit and Charitable Sector” features lots of data and information about the size and scope of the sector and how it is funded, and about its relationship with government and key policy issues it faces.

“The nonprofit and charitable sector represents a significant, highly diverse component of the U.S. economy,” the report says.

Noting that President Barack Obama has “turned toward the nonprofit sector while seeking solutions to social problems,” the report says the economic downturn “increased the demand for many of the goods and services provided by charitable organizations, while simultaneously placing the same organizations under increased financial constraints.”

In providing an overview of the charitable sector’s relationship with government, the report says that, in theory, “economics suggests that the government should subsidize activities that are either public goods or have positive external effects.”

And it says it “can be argued that some charitable activities possess these qualities.”

The report also examines the costs to government of providing grants; allowing charitable contributions to be deductible; exempting investment income of charities from tax; and providing property and sales tax exemptions.

It also looks at government’s oversight role.

And it reviews key policy options affecting the sector, including increasing government grants and subsidies to charities; creating an oversight agency within the federal government to gather data, conduct research, and advocate for the charitable sector; implementing policies to help charities and foundations in economic downturns; and changing the itemized deduction for charitable contributions by limiting the deduction, converting it to a credit or making it more widely available.

Among data in the report:

• Over 1.5 million nonprofits are registered in the U.S., nearly 64 percent of them public charities, nearly 8 percent private foundations, and 29 percent other types of nonprofits.

• In 2005, the nonprofit sector overall employed 12.9 million people, or 10 percent of the workforce,

• From 1998 to 2005, nonprofit employment overall grew 16.4 percent, compared to 6.2 percent for overall employment in the U.S.

• In 2004, the charitable sector alone employed an estimated 9.4 million people, or over 7 percent of the U.S. workforce, plus the equivalent of 4.7 million full-time volunteer workers.

• Based on employment, the charitable sector is larger than the construction sector and larger than the finance, insurance and real-estate sectors combined, and it has nearly half as many employees as federal, state and local government combined.

• In 2009, public charities reported $1.4 trillion in total revenue and $2.6 trillion in assets, while private foundations reported $181 billion in revenue and $621 billion in assets, and other nonprofits reported $386 billion in revenue and over $1 trillion in assets.

• In 2008, a broad category of nonprofits known as “nonprofit institutions serving households,” a subset of the overall nonprofit sector, generated 5.2 percent of U.S. gross domestic product, or GDP, representing $751.2 billion worth of output.

• Nonprofits’ share of GDP grew 0.4 percentage points from 1998 to 2008, consisting of wages paid to nonprofit employees, the rental value of assets owned and used by nonprofits while providing services, and rental income from tenant-occupied housing nonprofits own.

• Charities raised $1.2 trillion in revenue in 2005, with fees or private payments for service accounting for 49 percent of overall revenue and government grants and contracts accounting for 29 percent; private contributions, return on investments, and other sources accounted for the remainder.

• Total revenue for charitable institutions grew 68.6 percent from 1995 to 2005.

• During the recession, from 2007 to 2008, charitable giving fell 2 percent in nominal terms, and 5.7 percent adjusted for inflation.

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Grantmakers can do more than make grants

By Todd Cohen

Charitable grants get much of the focus of the more than 75,000 grantmaking foundations in the U.S.

But with the recession vaporizing over one-fifth of the value of foundations’ assets, foundations should be looking harder for additional strategies they can use to advance their charitable mission.

Program-related investments, or below-market-rate investments in activities tied to their missions that foundations can count as part of their annual charitable distributions, are growing in use, according to a new study by the Foundation Center.

The study, which tracked 173 private and community foundations that made at least one program-related investment of at least $10,000 in 2006 or 2007, found PRI’s for the period totaled $734 million.

That is only a tiny fraction of the nearly $92 billion those foundations’ overall charitable distributions for the two-year period.

But the Foundation Center also says a recent survey it conducted found over half of foundations planned to use non-grantmaking activities because of the recession, and over one in 10 of those voiced an interest in increasing their use of program-related investments.

The erosion of foundation assets, and in turn grantmaking, because of the recession, the Foundation Center says, provide “the best incentive yet for foundations to consider whether PRIs – as well as other forms of mission-related investing – are an appropriate tool to advance their missions.”

With social and global problems increasing because of the recession, foundations need to be more strategic about investing their resources.

That means taking a hard look at program-related investments and taking a more active role as shareholders, investing in companies and capital markets that not only will promise healthy investment returns that also will advance their mission.

Recession pushing nonprofits back to basics

By Todd Cohen

Despite the flood of giving for relief efforts following the Haiti earthquake, reports on the giving sector underscore the need for nonprofits to get their shops in order and focus on the fundamentals of doing business.

Giving continues to decline.

Echoing an ongoing downward trend in the charitable marketplace, a new study last week by the Council for Aid to Education reported a decline of 11.9 percent in charitable contributions to colleges and universities in the U.S.

And Dunham+Company, a consultant to Christian ministries, found in a recent survey that, despite a decline in the share of households that are spending less on monthly bills and entertainment, 37 percent of households expect to continue reducing their charitable donations.

And nearly one in four households have eliminated donations altogether, statistically the same as last year.

Experts on nonprofits and fundraising continue to urge organizations to take stock of their operations and programs, get their boards more involved in fundraising and strategic planning, and give personalized attention to givers and get them involved in their organizations.

This focus on basics requires leadership at the staff and board levels.

And leadership requires thinking big, asking questions and listening, telling stories that are authentic and compelling, and investing strategically.

A new study, Creative Disruption: Sabbaticals for Capacity Building and Leadership Development in the Nonprofit Sector, finds that sabbaticals can be “a relatively inexpensive but highly productive-building tool that yields measurable results.”

The recession is a time to take a hard look at business as usual, fix or eliminate what is not working, and build on what is working.

Now more than ever, nonprofits must be willing to invest in working smarter.

Haiti relief underscores deeper needs

By Todd Cohen

While Americans quickly dug deep to support relief efforts in the wake of the earthquake in Haiti, the outpouring of generosity also serves as a troubling reminder of our ongoing failure to better address social and global needs that are urgent, persistent and deeply rooted.

Just as they did after 9/11, Katrina and the Asian tsunamis, individuals, companies and foundations after the Haiti quake have done what Americans do best in times of crisis: They got involved and gave.

What we often seem to forget, however, is that we face a perpetual crisis, one the recession simply has deepened.

At home and abroad, millions are hungry, homeless, in poor health, impoverished, illiterate, and subjected to violence and intolerance.

The giving sector exists in large part to address the problems vulnerable populations face.

But among the nearly one million charities in the U.S., many struggle with limited resources and big operating challenges.

Individuals, foundations and companies in the U.S. give over $300 billion a year to support charities, and often give more after horrific events like the quake in Haiti.

But the charitable marketplace has changed dramatically in recent years in the wake of financial and ethical scandals and the collapse of the economy.

Many foundations and corporations have narrowed the focus of their giving, and are demanding more business-like operations from charities seeking support.

Those funders want nonprofits to be more strategic, set measurable goals, create clear metrics to gauge their impact and effectiveness, and make their staffs and boards more diverse and inclusive.

These all are important goals: To address critical needs, nonprofits must be able to sustain themselves financially and engage the thinking and know-how of the full spectrum of people and institutions with a stake in making our communities better places to live and work.

But in placing greater demands on charities and ratcheting up expectations for how they perform, many funders seem to be in denial about the investment charities need to meet those demands and expectations.

Most charities are small, community-based groups with limited resources.
Their employees are overworked and underpaid and often lack the skills or know-how they need to keep their shops financially afloat.

Their boards often are not willing to raise money or set a vision and direction for the organization, and typically are not even aware those are key responsibilities of their board role.

The recession has increased demand for services from charities and reduced the dollars available to them in what has become a fiercely competitive charitable marketplace.

And foundations and corporations typically will not support charitable operations, preferring to fund special projects and address particular needs in sync with their mission or business goals.

So while they expect charities to be more enterprising, efficient, effective and strategic, funders are not willing to make the significant investment charities need to improve the way they do business.

After the Haiti earthquake, savvy charities used social-media strategies like text-messaging to raise a lot of money quickly.

Aiding that effort was massive coverage by mass media that used the power of images and technology to communicate both the intimacy and the massive scale of devastation in a nation long ground down by poverty.

Yet while they are quick to provide wall-to-wall coverage of horrific disasters in their immediate wake, the media fail to tell the ongoing story of the relentless toll poverty takes throughout America and the world.

And while nonprofits serve on the front lines in the fight against poverty, their limited resources make it tough for them to more effectively tell their story to the mass audience mass media can reach.

Nonprofits need all the help they can get, including greater understanding and flexibility among foundations and corporations that control charitable resources nonprofits can use to do a better job running their organizations, serving people in need, and telling their stories to engage more people in their cause.