Charting the Resources of the Pittsburgh Region's Nonprofit Sector

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Executive Summary

Nonprofits in the Pittsburgh area and across the country face a changing funding environment and a steadily rising need for their services. The nonprofit-government partnership is in a state of flux as government at all levels reassesses its priorities and budget allocations. Charitable giving, as reported on individual tax returns, has declined in recent years, and foundation support, at best, is holding steady. This scenario suggests the need for a systematic look at the nonprofit sector in the Pittsburgh metropolitan area to target investments effectively and build the capacity of community-based groups.

The study was guided by four questions to uncover the notable strengths and gaps in nonprofit activity in the region:

1. What is the overall size of the nonprofit sector in the Pittsburgh area and how does its size vary by county?
2. How is spending distributed across counties and does this distribution vary by industry?
3. On what sources of revenue do nonprofits rely and does reliance vary by county?
4. How financially healthy is the region's nonprofit sector, and how does its fiscal well-being vary by county and industry?

Data for the study come from the National Center for Charitable Statistics at the Urban Institute and are based on the Forms 990 that nonprofits filed with the Internal Revenue Service for the year 2001. Because of lags in data processing, 2001 data provide the most complete set of records. More importantly, for many nonprofits 2001 marked the start of their current financial worries as the stock market tumbled and the economy softened.

Findings

• Allegheny County dominates the region's nonprofit sector. It ranks first in the number of nonprofit organizations in the region (1,799 of the 2,674 nonprofits in the region). It holds the greatest share of financial resources ($10.1 billion of the region's $12.4 billion in revenues, and $20.3 billion of the region's $23.2 billion in assets). Allegheny County has three-quarters of the nonprofit health providers in the metro region and 70 percent of the arts organizations.
• Hospitals and health care systems dominate spending in the region's nonprofit sector, although human service providers are a significant economic force in small and mid-sized counties. Nonprofit hospitals and health care systems are a $6 billion industry in the Pittsburgh region. In every county except Beaver, hospitals and health care systems accounted for half or more of nonprofit spending. In smaller counties (Fayette and Armstrong, for example), the hospital industry accounted for 60 and 70 percent of spending. The complexities of the health care industry make it difficult to accurately track the finances of these organizations, but their enormous economic impact is undeniable. In smaller and mid-sized counties, human service providers also contribute a sizeable sum to their communities. Overall, nonprofit human service providers spent $1.2 billion in the region, of which about one-third ($407 million) was spent by nonprofits outside Allegheny County.
• User fees, contracts, and government grants comprise the most important source of funding for Pittsburgh area nonprofits. Of the $12.3 billion in nonprofit income in 2001, 85 percent (or $10.5 billion) came from fees paid by clients for services, contracts, and government grants. Less prominent, but still vital to the sector's funding base, is support from private donors. Private donations, including foundation support, added another $1.1 billion to the region's nonprofit sector.
• The region's nonprofit sector ended 2001 with a modest operating margin of 3.3 percent. Except for Fayette, smaller counties performed less well than larger ones. Armstrong, Butler, and Beaver had operating margins below 3 percent. Educational providers fared best, while human services and hospitals fared worst. Hospitals and health care systems operated on a razor thin margin of less than 1 percent.
• Regionally, nonprofit assets totaled $23.2 billion 2001, with half of the assets concentrated in the health sector. Health care held $11.8 billion in assets in 2001. Education ranked second with $6.2 billion or 27 percent of the total. By comparison, human services had a modest $1.6 billion in assets and the arts sector had $857 million. Regionally, three of every five dollars in assets are unencumbered with debt.

Implications

• Despite the large number of nonprofits in the region, there are potential gaps in service, especially in smaller counties. Armstrong County has no apparent arts sector, and three counties (Armstrong, Butler, and Fayette) have no nonprofit higher education facility. Although it may not be necessary or even desirable to have every type of nonprofit service represented in every county, it is important for residents to have access to services. Before filling any gaps, more needs to be learned about the needs and preferences of county residents regarding their use of services.
• The sector's overwhelming reliance on user fees, contracts, and government grants creates a risky financial environment. If government funding declines in the future, user fees or private donations must be increased to offset the loss of government support. Given the relatively small size of private donations, it is unlikely that they could make up for steep cuts in government funding. Smaller counties would be hardest hit by a loss in government funding.
• Strengthening the region's nonprofit sector requires greater attention to the management of its resources. One strategy might be to find areas of greater operating efficiencies; another might be to determine if the sector's assets can be better leveraged. Leaders in the region may need to decide if they want to signal to nonprofits that it is acceptable to build cash reserves or acquire assets, and if so, determine how to send this message to the sector.

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Usage, posting and reprint of materials on the UI web site:

Most publications may be downloaded free of charge from the web site in PDF format. This information may be used and copies made for research, academic, policy or other non-commercial purposes. Proper attribution is required.

Copyright of the written materials contained within the Urban Institute website is owned or controlled by the Urban Institute. Posting UI research papers on other websites is permitted subject to prior approval from the Urban Institute—contact paffairs@urban.org.

If you are unable to access or print the PDF document please contact us or call the Publications Office at (202) 261-5687.