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Some Education About Non-profit Associations

 

As one of the criteria for the 2011 Dandi Award winners – an awards ceremony presented by e2e Connect, Learn, Share (www.e2econnect.org) is giving back to our community, I thought it would be valuable to share with you some information on non-profits that may change the way you look at our local associations. Can you believe there are approximately 1300 associations in Tallahassee?

Why should you care? Let’s look at how non-profits benefit society:

  • The nonprofit sector includes more than a million organizations that spend $500 billion annually, according to The Independent Sector, a national nonprofit resource center. 
  • This sector offers meaningful and rewarding work and a culture that embraces community as its ultimate objective. 
  • By principal and design, nonprofits are dedicated to the common good, measuring success according to the quality of life, not quantity of profit.
  • They deliver key services that would otherwise be the responsibility of the federal government, or private businesses.

In fact, a report entitled  Increasing Numbers and Key Role in Delivering Federal Services, found that U.S. nonprofit organizations have a significant role both in the economy as a whole and as providers of services. While the majority of nonprofit organizations have relatively small operating budgets, together their impact is large. 

By definition, *A nonprofit organization is formed for the purpose of serving a public or mutual benefit other than the pursuit or accumulation of profits for owners or investors. The nonprofit sector is often referred to as the third sector, independent sector, voluntary sector, philanthropic sector, social sector, tax-exempt sector, or the charitable sector.

Currently, about 1.2 million organizations are registered with the IRS as nonprofit organizations. It is estimated that millions more small formal and informal associations exist that do not register with the IRS because they have revenues of less than $5,000 per year.

Nonprofit organizations are usually classified as either member serving (addressing the needs of only a select number of individuals) or public. They take many forms:

Charities - e.g. American Red Cross, Salvation Army, YMCA

Foundations - e.g., W.K. Kellogg Foundation, Ford Foundation, community foundations

Social Welfare or Advocacy Organizations - e.g., National Association for the Advancement of Colored People (NAACP), American Civil Liberties Union (ACLU), National Rifle Association (NRA)

Professional/Trade Associations - e.g., Chamber of Commerce, American Medical Association (AMA)

Religious Organizations - e.g., churches

In 1601 when the United States Congress met to develop the first federal income tax laws, they determined that nonprofit organizations should be free from the burden of having to pay income taxes and also called upon society to support these organizations. Almost all nonprofits are exempt from federal corporate income taxes. Most are also exempt from state and local property and sales taxes.

Nonprofits have received this status because they relieve the government of its burden, benefit society, or fall under the provision of separation of church and state. It is important to point out that nonprofit organizations are not prohibited from making a profit.

The IRS does however restrict what organizations can do with its "profits." All money must go back into the operation of the organization. Profits cannot be disseminated among owners or investors.

The National Taxonomy of Exempt Entities classify nonprofit organizations into nine major groups:

  • Arts, culture, humanities
     
  • Education
     
  • Environment and animals
     
  • Health
     
  • Human services
     
  • International, foreign affairs
    Public societal benefit
     
  • Religion related
     
  • Mutual/membership benefit

There are economic, historical, and political theories regarding the reason why nonprofit organizations exist in today's society.

Economic Theories:

Market failure - This theory is based on the premise that not enough people desire a service or program to attract for-profit corporations to provide such services. Also, the fact that an organization exists without a profit-motive instills trust in the constituent.

Government failure - The government will not provide a service because of high cost or limited interest by the public. If there is not a large presence of constituents demanding a response from government, then the government is not likely to act. A small group of individuals can create a nonprofit organization to provide mutually desired services rather then trying to convince a majority of citizens to support such efforts. There is also a cultural resistance to "big" government. Citizens are skeptical about the government being involved in all aspects of community life.

Historical Theory - Communities in America were formed well before formal government. Citizens were forced to come together to address issues within their communities and work together to form a solution. Even when government developed a presence within a community, citizens were afraid of the bureaucracy and often sought out solutions through voluntary association. Religion also provides a strong foundation for charity and altruism through scripture and a sense of duty taught within the church.

Political Science Theory - Nonprofit organizations provide an avenue for civic participation. People are able to assemble and work toward a common goal with an intent to benefit the public. Nonprofit organizations provide an outlet for pluralism and solidarity.

The four critical functions non-profits serve are:

Service Provision: Nonprofit organizations provide programs and services to the community. Often times, nonprofits are formed or expanded to react to a community need not being met by the government. Nonprofits also tend to have the ability to act faster than government in response to an issue. Nonprofits do not have to wait for a majority of citizens to agree upon a proposed solution. Rather, they have the ability to react to a specialized need or a request by a small group of citizens.

Value Guardian: Nonprofit organizations provide a mechanism for promoting individual initiatives for the public good (16). Nonprofit organizations provide a means by which members of a community can take action in an attempt to change the community they live in. These actions may take the form of developing a local neighborhood watch program or, on a larger scale, developing an organization that responds to world relief efforts.

Advocacy and Problem Identification : Nonprofit organizations provide a means for drawing public attention to societal issues. Nonprofit organizations make it "possible to identify significant social and political concerns, to give voice to under-represented people and points of view, and to integrate these perspectives into social and political life" (16).

Social Capital: In America, the nonprofit sector can be seen as a bridge between capitalism and democracy. Nonprofit organizations develop a sense of community among the citizens by providing a means to engage in social welfare.

Ties to the Philanthropic Sector

Nonprofit organizations receive approximately ten percent of their income from donations. There is a common belief by the general public that this percentage is much higher. In fact, many believe nonprofit organizations receive the bulk of their income from donations. In reality, most of the income received by nonprofits is generated from fees for services, sale of products, or earned interest on investments. The second highest source of income is government grants or contracts. Private giving is merely the third highest source of income for nonprofit organizations. However, a large number of American citizens contribute to nonprofit organizations. In 1998, a reported 70% of households contributed to charity.

Volunteerism is a key component for nonprofit organizations. Volunteers serve a variety of roles within organizations. Most notably, nonprofit organizations are each governed by a volunteer board of directors. Volunteers are also utilized as fundraisers, service delivery staff, staff management, and in numerous other capacities. Volunteers bring personal experiences and professional expertise to enhance the nonprofit organization. In 1998, it is estimated that 109 million Americans volunteered an average of 3.5 hours per week in nonprofit organizations. This is equivalent to nine million full-time employees at a value of $225 billion (Gallop Organization).

*This paper was developed by a student taking a Philanthropic Studies course taught at Case Western Reserve University. It is offered by Learning To Give and Case Western Reserve University. This page may be reproduced for educational, noncommercial uses only, all other rights reserved.

I hope this information has helped convince you that there is an abundance of reasons to support our local non-profit associations. Having spent approximately 20 years of my career in various social service non-profits, in all capacities of non-profit management, I am passionate about keeping them healthy. Please consider making giving back to our community non-profits a part of your marketing planning.

 Deanna Mims, MarketDone

August 2011