In a forthcoming Urban Institute book, NonProfits and Government: Collaboration and Conflict, a number of the nation's leading experts on the nonprofit sector explore the complex, evolving relationship between the government and nonprofit organizations. At our First Tuesdays' forum, several contributors to the book discussed some of their key findings. The discussion was moderated by Elizabeth Boris, director of the Urban Institute's Center on Nonprofits and Philanthropy and one of the book's editors.
Questions from the Audience
Elizabeth Boris, Urban Institute
"The tax-exempt status of nonprofits recognizes the public service role of nonprofits that often results in collaboration with government. But government benefits often entail regulation and that is the basis for some of the conflict in the relationship." Elizabeth Boris says the public is largely unaware of the size of government support for nonprofits.
Alan Abramson, Aspen Institute
"Overall federal spending in program areas of concern to nonprofits income assistance, health, education, research, and so on affects the demand on nonprofits for services. That's one impact. The second impact is a revenue impact. Through grants, contracts, and other means, the federal government supplies a significant proportion of nonprofit revenues, which in turn affects the capacity of nonprofits to deliver services." Mr. Abramson takes a look at shifting government spending priorities and how they have affected nonprofits over the past two decades.
Evelyn Brody, Chicago-Kent College of Law, Illinois Institute of Technology
"When you look at the current landscape between Congress as tax collector and nonprofits, and also the states as tax collectors, you can't really describe the current regime as intended or motivated by the same purpose for every single one of the tax rules. What we have now is not deliberate in the sense that someone sat down and said, 'Let's have income tax exemptions, charitable contribution deductions, bond financing and property tax exemptions.' We are here, though, and it's fair to look at this situation because these can all be revisited. They are political decisions." Ms. Brody explains how government and nonprofits came to form this relationship.
Joseph Cordes, George Washington University
"Sixty cents out of every dollar that the nonprofit sector receives is derived in some form from either government spending programs or tax concessions. That's a fairly substantial amount. This special relationship between governments and nonprofits can be a mixed blessing for nonprofits, creating both opportunities for nonprofits but also certain challenges." Mr. Cordes discusses the advantages and disadvantages of government support for nonprofits.
Elizabeth Boris, The Urban Institute
Elizabeth Boris is the director of the Center on Nonprofits and Philanthropy at the Urban Institute. She points out that government provides one of the largest sources of revenue for many nonprofits.
"Despite the recognized importance of donations, what's not obvious to most people is the small proportion of nonprofit revenues that actually comes from charitable donations. There's a much larger role played by government financing through contracts and grants. Private donations make up about 19 percent of overall nonprofit revenues. Government payments and grants make up approximately 32 percent. And fees for services, which is the fastest growing revenue stream, make up about 39 percent.
"This financial portrait reveals the strong intersection of nonprofits and government as they collaborate to provide certain types of public services. That's why nonprofits and government are often seen as partners in public service. This portrait, however, must be understood in the broader context of the diversity of nonprofit organizations and the role they play in society. Nonprofits are a diverse group that includes hospitals, schools, research institutes like this one, soup kitchens, churches, youth groups, and so on. Not all seek government contracts or charge fees. This is important for us to remember.
"Government policies, through taxes, regulation, and financing mechanisms and through accountability standards, have profound impacts on nonprofit organizations. That impact varies by the type and size of organization.
"Financial resources are concentrated in the largest nonprofit organizations. Most nonprofits are small, 40 percent have revenues less than $100,000. They are largely led by volunteers and they run and operate in local communities."
Alan Abramson, Aspen Institute
Alan Abramson directs the Nonprofit Sector and Philanthropy Program at the Aspen Institute. Mr. Abramson's recent research highlights the impact of federal spending cuts since 1980. Private giving, he says, has not been able to make up for cuts in government spending in areas also served by nonprofits, such as education or social services. On the other hand, he says, private giving has been able to make up for cuts in direct federal support to nonprofits.
"It is important to go beyond some of the rhetoric to examine some of the harder numbers, although many of these numbers are still estimates. Our understanding of the government-nonprofit relationship is still imperfect and there's a lot more research that could be done.
"Future research and policy discussions ought to pay more attention to new demands being put on nonprofits and how nonprofits are or are not coping with these demands. Recent studies suggest that many nonprofits are turning to fees and service charges to try to meet the new demands. However, this increased reliance on earned income and other commercial revenue sources is raising important questions about possible blurring of the lines between nonprofits and for-profit organizations.
"There is also a clear need to collect more detailed information from nonprofits themselves about the impact of government spending changes. Most research is top-down analysis, like what I have described here, where we are mostly looking at the impact of the federal budget from the top down. What we really need is some bottom-up information from nonprofits about what they are experiencing."
Evelyn Brody, Chicago-Kent College of Law, Illinois Institute of Technology
Evelyn Brody, associate professor of law at Chicago-Kent College of Law, Illinois Institute of Technology, is also an associate scholar at the Urban Institute. Formerly an advisor in the Office of Tax Policy at the U.S. Treasury, she writes on legal issues affecting nonprofits.
She points out that the income tax exemptions, charitable contribution deductions, bond financing, and property tax exemptions enjoyed by nonprofits result from a series of political decisions that can change over time.
"These things can be revisited. These are all legislative decisions, political decisions. One way of looking at how we got here is that these tax rules are subsidies. The government is trying to stimulate a certain type of behavior, either by the organizations or by donors and consumers of nonprofit services. Another way to view the relationship between the government and nonprofits is to consider that charities simply fall outside the tax base.
"In general, there is a feeling that nonprofits and government have separate spheres of operation, where the government leaves the charities alone. That relationship is as much political as it is economic. I think the charities like that approach. It's very stable. The government doesn't revisit it every year, doesn't offer a budget every year on how much it will offer to the nonprofit sector. But it is vulnerable to changes in the political climate, and if we do see changes in the tax structure, there may be changes in the treatment of nonprofits. If we have an income tax, we can offer a charitable contribution deduction. If we don't have an income tax, we can't. If we have a consumption tax, what would the subsidy to the nonprofit sector look like? It would have to be something else."
Joseph Cordes, George Washington University
Joseph Cordes, a professor at George Washington University, is a visiting fellow at the Center on Nonprofits and Philanthropy at the Urban Institute. He notes that government subsidies and grants provide many nonprofits with much of their revenues, and says this relationship has both advantages and disadvantages.
"We have certainly witnessed a long period of time in which growth of government spending programs has been quite rapid and significant in the area of social services. There's some debate among economists over whether government dollars have crowded out private charitable contributions, but there's no disputing the fact that the rise of government in the social service sector has not crowded out nonprofit organizations as important intermediaries in the delivery of social services.
"In the process, government spending programs have become the most important source of revenue for many nonprofits. That could be a plus to nonprofits because it provides stable revenues. It allows them to plan how they will deliver services over a period of time. But there are potential downsides to this as well. One is that increased dependence on government revenues can create tensions, because the nonprofits may have different visions on how to serve clients than the government. Another is that the prospect of receiving government revenue for certain activities may cause nonprofits to shift priorities or directions to enable themselves to compete for government funds."
Questions from the Audience
Eliza Patterson, Oxford News
"Has anyone evaluated the impact that federal support has on leveraging private giving, to see if people will give more if an organization is supported by the government?"
Cordes: "There have been attempts to evaluate that and the results have been mixed. We should not lose sight of the fact that the status that the tax code confers on an organization as tax-exempt gives it a seal of legitimacy that is of value when it solicits contributions. When we look at whether increased government spending in certain areas displaces private contributions, research shows there is some displacement affect, but not dollar for dollar."
Phil Dearborn, Greater Washington Research Center
"I'm interested in the blurring of the lines between for-profit and nonprofit groups as it relates to economic development. How should we treat nonprofits from an economic development viewpoint?"
Boris: "We have to look at the employment factor. What does the nonprofit sector add? It's surprising how much economic activity is generated through employment, through nonprofits buying supplies, through university research and development, through the development of tourism by cultural institutions. I think we are becoming more sophisticated in terms of looking at these numbers and determining the implications."
James Hoben, U.S. Department of Housing and Urban Development
"Do other countries have nonprofit sectors comparable to ours?"
Boris: "Yes, there are huge nonprofit sectors in other countries. The United States does not have by any means the largest nonprofit sector. There are some other countries where a larger proportion of social services and health services are delivered through nonprofits. There are some things we can learn from other countries. We are just beginning to look at this."
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