Tight Government Budgets Make Nonprofit Sector a Tempting Revenue Source

Blue vise clamps on dollar sign

As the economy slowly recovers, governments at both the state and federal levels are hard pressed to stretch limited resources to cover an increasing number of priorities. Squeezed between the proverbial rock and a hard place, government officials are not only looking for programs that they can eliminate or scale back, but new sources of revenue.

On the revenue side of the discussion, the bulk of the attention has focused on proposals to change the tax code as it affects individuals or corporations. Yet many states have considered proposals that could make the nonprofit sector a tempting source of revenue during these difficult times.

According to the Urban Institute’s estimates, there are nearly 1.6 million tax-exempt organizations in the U.S. More than 1 million (nearly 67 percent) are religious, charitable or similar organizations. On Tuesday, April 3, the Urban Institute hosted a “Are There Too Many Nonprofits,” a provocative forum that explored the costs (in terms of tax exemptions) of the nonprofit sector, and the return our society and communities receive in exchange for this public investment.

As government support for human services has declined, more than 1 million charitable organizations are becoming even more dependent on private revenue sources to keep their doors open. In our free-market society, we like to think that the most beneficial organizations will survive while the less beneficial and less agile organizations will be absorbed or go out of business. Yet Pennsylvania’s Chief Deputy Attorney General Mark Pacella believes a lack of transparent information makes it hard for many donors to distinguish the good charities from the bad.

No matter what information exists, comparing one tax-exempt organization to another is often an apples-to-oranges exercise. To add to the complexity, some for-profit enterprises are blurring the for-profit/nonprofit distinction for individual donors. For example, some for-profit thrift stores ask for donated goods by implying that proceeds will benefit charity. In reality, little to none of these proceeds benefit charities.

In contrast , Goodwill raised more than $4 billion in its retail stores and other entrepreneurial enterprises in 2010; investing approximately 84 percent to provide job training, employment services, and other supports to help nearly 2.5 million people find a job or advance in careers.

As it has for the past 110 years, Goodwill is aggressively expanding its entrepreneurial enterprises to increase its capacity to do more, especially during these difficult times. Meanwhile many agile nonprofit organizations – “good and bad” alike – are shifting fundraising efforts away from government sources, which are expected to continue to decline toward private sources.

At a time when governments are asking charities to do more with less and nonprofits like Goodwill are seeing a drastic increase in the number of people needing services, policymakers should look for ways to protect – if not increase – charitable giving incentives to organizations that have the capacity to help people in their communities in profound and positive ways.