Nonprofits sector face changes, challenges

Chuck Raasch/Baxter Bulletin


WASHINGTON — It may come as a surprise to learn that the nonprofit sector accounts for more than 10 percent of the U.S. economy and that it employs 11.7 million Americans.

Those are the findings of recent reports by the Government Accountability Office and a panel of nonprofit leaders that convened at the behest of Senate Finance Committee chairman Charles Grassley, R-Iowa.

Spurred by allegations of nonprofit abuse after the Sept. 11, 2001, terrorist attacks, Congress is taking its first serious look at nonprofits in 35 years. There may be political self-interest at play. An exploding universe of tax-exempt organizations — from Moveon.org to the Swift Boat Veterans for Truth — played major roles in the 2004 political campaigns. Political money is like water, so when Congress shut off big donations to the national political parties, tax-exempt groups popped up like so many buckets under a leaky roof.

Jack Abramoff, the Washington lobbyist who allegedly bilked Indian tribes out of tens of millions of dollars, funneled some of that money through nonprofits he set up, including one in which he and his wife were the only board members, according to testimony at a recent Senate hearing.

Such news makes leaders of the nonprofit sector cringe. As past scandals involving the United Way and other nonprofits showed, Americans want to feel confident that the billions they give annually to charities are not wasted. When nonprofits are set up as financial shells, as Abramoff's apparently were, leaders of legitimate charities worry that they'll be smeared by a broad brush.

Fearing Congress could crack down, some nonprofit leaders are urging reforms that include better reporting to the IRS and more scrutiny of board members. Some nonprofit leaders are even begging for more media coverage.

"You help us keep the public trust in our institutions," Emmett Carson, president of the Minneapolis Foundation, told journalists at a Knight Foundation conference on nonprofits at the University of Mississippi. "When you expose things, you help keep our standards high."

According to the GAO and the report to Grassley:


The IRS recognizes about 1.5 million tax-exempt organizations, from tiny neighborhood groups to the mammoth foundations of Ford, Bill Gates and other wealthy donors. This is up by at least 50 percent in the last 20 years. From 1975-1995, assets held by charities expanded by more than 300 percent while the economy experienced 74 percent growth.


Despite the explosive growth, the IRS in 2004 had only 2,122 regulators watching tax-exempt groups, roughly the same as in 1974.


Many U.S. hospital systems are nonprofits, and many are now being sued by a group of lawyers claiming that they are not fulfilling their tax-exempt status because they allegedly overbill the poor. The plaintiffs have struck out in federal court, but the lawyers — led by Mississippi attorney Richard Scruggs, a veteran of the tobacco lawsuits — are filing cases in state courts all across the country.


There is a growing movement to make nonprofits more businesslike and cost-efficient, but critics say the bottom line isn't always the best measure of charity. If nonprofits are pushed to take on the most cost-efficient causes, they will be reluctant to take on the most difficult problems that require risk and innovation to solve.


Spurred on by aging baby boomers seeking something other than fat 401(k)s for meaning in their lives, business veterans of the go-go '90s are shifting into the nonprofit sector. "We are at the front end of a wave on this," said Jeffrey Bradach, a former Harvard Business School professor who five years ago formed the Bridgespan Group to help for-profit executives move into the charity world.

The University of Mississippi nonprofit seminar is the brainchild of Burnis Morris, a journalism professor at Marshall University, who is crusading for greater coverage of the sector.

At the recent seminar, nonprofit heads, state regulators, fundraisers and journalists all agreed on one thing: Despite the Bush administration's push for "faith-based" initiatives, private philanthropy will never be able to match the federal government's ability to address poverty, homelessness, health care and other problems.

"At best," said Carson, who is also chairman of the Council on Foundations, "we will always be a complement to government."