by Jacklin Bolduan
Over the next few weeks, The Madison Times will be exploring the nonprofit sector, its role in our community, and the economic, social, and cultural values we place on this growing sector. This first piece will provide a brief background on nonprofits and some information on their presence in our communities.
What is a Nonprofit?
According to the National Council of Nonprofits, a nonprofit is defined as any organization that is tax-exempt under Internal Revenue Code Section 501(c)(3) and that benefits the public interest in some way. Nonprofits can either function as private foundations or charitable organizations. Private foundations are broadly divided into corporate foundations, family foundations, and operating foundations. According to the National Taxonomy of Exempt Entities, there are 654 categories of charitable nonprofits in eight primary groups. The largest group (35.5 percent of all nonprofits) are deemed “human service” organizations, which include organizations that protect children, provide disaster assistance, and food and shelter, among other services. Other categories include Education, Health, and Arts, Culture, and Humanities.
Nonprofits do in fact generate revenue, however these funds must be used by the organization to pay staff, make expansions, or to sustain the organization in general. Nonprofits have no owners, so any profit made should in theory benefit the members or community the organization serves.
Nonprofits in the U.S.
According to the Urban Institute’s 2014 brief on the nonprofit sector, approximately 1.44 million nonprofits were registered with the Internal Revenue Service (IRS) in 2012, which is an 8.6 percent increase from 2002. Nonprofits employ the third largest workforce in America, behind retail and manufacturing, according to the University of San Francisco, contributing an estimated $887.3 billion to the U.S. economy in 2012. This composes 5.4 percent of the country’s gross domestic product (GDP).
In order for nonprofits to function, many rely on volunteers and donors to make their gears run. According to the University of San Francisco, one quarter of adults (25.4 percent) in the U.S. saying they volunteered with an organization in 2013. They spent around 8 billion hours volunteering that year, which amounts to an estimated $163 billion in wages. In regards to donations, total private giving from individuals, businesses, and foundations totaled $335.17 billion, which is just over a 4 percent increase from 2012, after adjustment for inflation. According to Giving USA, giving rose in 2013 for the fourth consecutive year. This is lower, however, than its pre-recession peak in 2007.
Nonprofits in Wisconsin
The National Center for Charitable Statistics estimated that there are around 19,000 public charities registered with the IRS in Wisconsin, excluding religious congregations. Many of these charities are small and do not gain enough income to report to the IRS. However, those in Wisconsin that do report contribute heavily. The nonprofit sector has grown 13 percent in Wisconsin since 2005, according to the Wisconsin Nonprofit Association’s latest report. 7,944 public charities were reporting in 2011, a 0.5 percent increase since 2008. As is true nationally, Human Services encompasses the largest number of public charities in Wisconsin, making up about 38 percent in 2011, followed by Education and Public and Societal Benefit. Most of these nonprofits are, not surprisingly, located in Dane, Milwaukee, and Waukesha counties, as those are mostly densely populated.
According to the Wisconsin Nonprofit Association, Wisconsin charities receive funding from a wide variety of sources which include program service revenue, grants and contributions, investment income, and a few other sources such as royalties or rental income. Most of these organizations receive the majority of their funding through program service revenue, which includes for-fee services provided to nonprofit clients as well as for-fee services paid for through government contracts. Human Services, for example, generates approximately $4.18 billion in revenue, 60 percent of which comes from program service revenue.
It is important to remember that nonprofits and government work hand-in-hand to provide services to the public. Due to governmental limitations, nonprofits provide services that the government cannot. This is a relationship that can be traced back even to our nation’s earliest charity organizations. Working with the government, however useful, can also bring unwanted hiccups. According to the Wisconsin Nonprofit Association, Wisconsin ranks within the top ten amongst states that report problems with payments covering the full cost of services, complexity of and time required for reporting, and government changes to contracts or grants midstream. In 2012, 28 percent of nonprofits studied reported that their experience with government contracts was worse that year than in previous ones. In addition, late payments from the government were reported as problematic by 35 percent of nonprofits studied in our state. There is a constant push and pull between the nonprofit sector and government, one relying on the other for funding and public service. Nonprofits can be heavily involved in government, as they often lobby to make the interests of their clients heard in front of legislative and decision- making bodies.
With the growth of the nonprofit sector continually on the rise, there are more people now than ever who seek to build careers in the industry. Students at UW Madison and other universities can now earn degrees in majors like Community and Nonprofit Leadership, which, according to UW’s School of Human Ecology’s website, “prepares graduates for careers in community and nonprofit business settings, enabling them to create, support, and lead innovative community- based efforts to support, empower, and serve youth, adults, and families.” This important piece of our community’s economic and social well-being is a complex web of funding streams, volunteer hours, employee salaries, and government interaction that can be difficult to piece together. With such a large impact, and a history that is long and difficult to trace, the nonprofit sector serves as an important case study in what it means to invest in our communities financially, socially, and culturally.