Monday, March 10, 2014

More of everything except foundations and credit unions

There are 31 subsections of the 501 (c) section of the U.S. tax code. This is the section, and its many subsections, that categorize tax exempt organizations - usually described as nonprofits. The largest subsection (by far) is 501 (c) (3) - which includes "religious, charitable, and similar organizations"* and its further subdivision, which includes private foundations.

Other subsections include (c) (4) - Civic leagues and social welfare organizations; (c) (5) - Labor, agricultural and horticulture organizations; (c) (6) - Business leagues, chambers of commerce, real estate boards, and trade boards; (c) (13) - Cemetery companies; (c) (19) - War veterans organizations; (c) (21) Black lung benefits trusts; and (c) (40) Religious and Apostolic organizations. 

Note Section 501 (c) does not include all churches or associations of churches, as these need not register with the IRS.

Recent headlines about the just released 2012 Nonprofit Almanac are focusing on the growth of nonprofit organizations - you can view highlights of the report here. Headlines include the breakneck pace of nonprofit formation in the last few years - which has been truly astounding. For example, from my read of the Urban Institute's data:
  • Only two categories (of the 31) of nonprofits got smaller in number between 2010 and 2012 - private foundations and credit unions. The number of private foundations dropped from 101,690 to 98,746.  The number of credit unions dropped from 2,816 to 2,472.
  • Every other category grew. Some enormously. In two years:
    • The number of 501 (c) (3) nonprofits increased by 260%, from 366,086 to 958,740
    • The number of 501 (c) (4) nonprofits almost tripled, from 30,225 to 86,916
    • 501 (c) (5)s increased from 22,327 to 46,812 (200% growth)
    • 501 (c) (6)s grew in number from 36,442 to 63,998 (175% growth)
    • Cemetery companies (c) (13) tripled - from 2,635 to 8,173
    • Organizations not classified in any of the 30 subsections grew from 395 to 126,461. I can't even calculate that percentage increase!
Some will look at these data and say, perhaps, hey we're not bowling alone anymore! After all, the number of social and recreational clubs ((c) (7)s) grew from 19,835 to 47,210.

Others will point to changes in public funding for services, the aging of the population, the return of veterans from two wars (Veteran organizations grew from 8,449 to 32,286) to explain some of the growth. The Affordable Care Act had an impact on hospitals and insurance companies and the recession of 2008 played some role.

I wonder if the classification or reporting systems changed, as the type of growth noted above - in a two year time frame - is astounding. I couldn't find an answer to this question in the study - would love details if anyone knows more about this.

I grew up in the Watergate era and was taught to follow the money. How is the growth in C4s, C5s, and C6s linked to the growth in funding for independent expenditures in political campaigns? This is the question I'd like answered. I've argued for years that the Citizens United case of 2010 was going to change the face of the nonprofit sector. By my math, the three types of nonprofits most effected by that Supreme Court decision (C4, 5, and 6) increased in number, collectively, by 108,692 newly registered organizations in 24 months. Given that every other category of organization but two also grew, and C3s grew by more than 250%, this represents a smaller percentage than in 2010. Is their growth simply in line with overall expansion? The real question is about the money they attract - is it an exclusive new source of funding for these three types of organizations?  Will the rate of growth in these organizations track other changes or take on a life of its own?

*Language from The Urban Institute's Nonprofit Almanac 2012, just released.


Anonymous said...

Thanks for breaking it down, will look forward to you getting more details on the #'s. Also, to see how the $$ flow connects to the growth. I.e., (c)(3)'s grew by 260%, did the money go up, or are there more orgs sharing a similar pot? In San Diego, reports attempt to break down the number of active charities vs inactive ones (around 50% seem to be basically inactive or barely active).

Likewise, as the # of DAF's has grown, I rarely see anything that breaks down the amount of $$ going to actual programmatic charities vs holding buckets. It will flow eventually, but seems that we need to know how much actually gets deployed - and make sure it's not double-counted.

Lucy Bernholz said...

Thanks David - really important to remind myself (ourselves) about DAFs. Makes me think that we really need to expand the kinds of data that gets collected to understand what the universe really looks like.

My social economy maps from Blueprint 2013 and 2014 seem more and more relevant here


Unknown said...

Lucy and David,

Yes, about half of nonprofits registered are defunct or inactive, and half of those that remain also are quite small, typically with budgets below $500,000. California Association of Nonprofits is coming out with an economic impact study of California nonprofits in July (and I co-authored a similar report for the 10 Southern California counties in 2005, but I think patterns still hold:

I agree, Lucy, the import of the growth in c(4)s, c(5)s and c(6)s depends more on how much money is flowing into them than the growth in the number of these orgs, and
they really are running the risk of tarnishing the public benefit sector as a whole.