Value, don’t Punish

Posted by Laura Otten, Ph.D., Director on August 26th, 2011 in Articles, Thoughts & Commentary

1 comment

I keep hearing that economic recovery depends upon the return of small businesses to a position of strength.  While nonprofits are, by no means, the largest part of the economy, we are an important factor that everyone seems to want to ignore.  And that just isn’t right.

According to a  Small Business Administration report released in February, there were 27.3 million small businesses (defined as business with fewer than 500 employees).  The nonprofit sector stands a tad below that at approximately 1.5 million.

A 2009 Congressional Research Service report had this to say about the economy of the nonprofit sector:

  • In 2005, the nonprofit sector employed 12.9 million people, or 10% of the workforce.  (By contrast, the SBA reports that small businesses employ about half of those employed in the US.)
  • From 1998 to 2005, nonprofit employment overall grew 16.4 percent, compared to 6.2 percent for overall employment in the U.S.
  • Based on employment, the nonprofit 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.
  • Nonprofits’ share of GDP grew 0.4 percentage points from 1998 to 2008.

A 2011 report from the Urban Institute reported that in 2006, the nonprofit sector contributed $666 billion to the economy, accounting for 5% of the GDP, 8% of the economy’s wages, and nearly 10% of jobs.  Not too shabby for a sector that everyone likes to write off as insignificant.  Imagine the state of our current economy without our sector.  It would be in worse shape than it already is.

So, I ask, why are small business being coddled (which I absolutely do not begrudge) and nonprofits being penalized.  To whit, a rash of actions—some being considered, some already taken—to increase the financial burden of nonprofits.  Here are but a few of my current favorites.

The United States Postal Service, hit hard by the decrease in personal correspondence, on-line subscriptions to magazines and print marketing, is, understandably hurting.  The cost of mailing a letter has increased multiple times over the last decade.  Now, the USPS is considering doing away with the special rate for nonprofits.  Donors, and others, already complain about how much money nonprofits spend on fundraising, mailing letters, sending gifts, etc.  The mailing the letter part was actually a mild expense thanks to the nonprofit bulk rate.  Do away with that, and the cost to raise money will go up.

I lost count of how many of the proposals for reducing the deficit included doing away with the tax break for charitable donations.  Contrary to the knee jerk reaction of many, this would not just have an impact on the million dollar giver, but could effect the small donor—the one who gives $25, $50 or $100—who itemizes her/his taxes.   So, the government earns a bit more income in tax revenue while the nonprofits struggle to keep their doors open.

Practically every major jurisdiction, and a good number of the smaller ones as well, have or are rethinking the property tax exemption for nonprofits.  A number have rescinded the exemption for large nonprofits; others are asking for “volunteer” payments for services used or, as Boston has done, asking for a “discounted” tax payment.

Chicago will soon start charging nonprofits for sewer and water.  California, however, wins the prize.  It is using a law that has been on the books since the 1940s, and taking the retraction of the property exemption to new heights.  The law allows each county assessor to determine whether a nonprofit is exempt or not based on his/her evaluation of just how much a nonprofit does for California residents.  The more a nonprofit does, the more likely to receive an exemption; the nonprofit perceived as doing less for the residents of California doesn’t fare as well.

Headquartered in California but do most of your work in states outside of the golden one or internationally, you’re likely to end up having to pay taxes.  But not always.

The David & Lucile Packard Foundation (which I love), gives just under 1/3 of its dollars to nonprofits in California, and yet it receives an exemption.

Stanford University, with one of the two best schools of business to integrate nonprofits, making me a huge fan, also is exempt, despite the fact that 55% of its student body in 2010 was from out of state.  

Variety, the children’s charity, is headquartered in Los Angeles; there are three chapters in California and 40 throughout the rest of the United States.  Wonder what its County Assessor said?  Besides the obvious of where you do your work, how do you measure “benefit” to California?  The Packard Foundation, Stanford and Charity the children’s charity all bring great benefit to California, regardless of where they do their good works.

Instead of thinking of ways that make it harder for nonprofits, how about we start valuing them for what they do for our communities and our economy.

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.

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