Nonprofit Sector Needs to Be Better Understood

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.

Read more stories by Todd Cohen.