June 14, 1994
Dear Reader:
Reading Putnam Barber's report for the Department of Community, Trade and Economic Development is a little like attending a lively conference on its important subject: "Nonprofits in Washington." Many of the pages offer new information shedding light on a subject that gets too little attention. Others convey insights from scholars and observers who have contributed to a large body of literature on related subjects. Plus there are some strong recommendations for action by state officials. I echo Put's views: greater attention by state government to nonprofits and some changes in the way state government works with them would be beneficial for both state government and the nonprofits themselves in communities throughout the state.
Two important initiatives addressing related questions are currently underway in Washington. The Office of the Secretary of State is seeking information from nonprofits in every part of the state in preparation for a review of policies and procedures touching on their work. And Northwest Nonprofit Resources of Spokane is participating in a nationwide "nonprofit policy agenda" project under the auspices of The Union Institute's Office of Social Responsibility. I hope the data collected and the theoretical framework of this paper will further both efforts. We at the Evergreen State Society are ready to continue the discussions of nonprofits in Washington as these other projects go forward.
With our mission of advocacy and stewardship for the special character of Washington, taking up the task of preparing this report was a very welcome opportunity for The Evergreen State Society. Nonprofit organizations are major contributors to the qualities Washingtonians hold dear about this place we all live. And of course the cultural and recreational organizations that make up the core of the membership of the Society are special treasures in the state's landscape. If this report encourages its readers to care more deeply about and renew their support for a healthy and effective nonprofit sector in Washington, we will have accomplished all we could hope from the time we have spent preparing it.
I am particularly pleased that Mike Fitzgerald, Director of the Department of Community, Trade and Economic Development, spent the time to meet with members of the Society at the start of this project and commissioned the work reported here. The new department which he heads has many points of contact with nonprofits in communities all across the state. A more general attention to the strength and well-being of nonprofit organizations is a straightforward extension of the department's existing activities. One that will be welcome indeed!
Sincerely,
Robert Ness, chairman
Nothing, in my view, more deserves attention than the intellectual and moral associations of America. (Alexis d'Tocqueville, 1835)
What's a nonprofit? It's a college or a daycare center. A hospital, nursing home, or hospice program. A theatre or gallery or museum. There are nonprofit consulting organizations, retail stores (selling donated merchandise, for example), and commuter clubs. Most trade and professional associations are nonprofit organizations, as are many community landmarks like The United Way and the Red Cross. As will become clear in this report, the nonprofits of Washington state make up a large and, in some ways, confusing group. Their purposes and goals are also many and various. Some will no doubt seem inconsequential. Others, no doubt, critically important. Every Washingtonian benefits often from things that nonprofits do. And every nonprofit does things that are important to someone.
Although every Washingtonian comes into contact with nonprofit organizations repeatedly and routinely, it comes as a surprise to most of us to learn there are nearly 32,000 recognized nonprofit corporations in Washington. The average monthly employment in the nonprofit sector is clearly larger than in any single commercial enterprise in Washington: 158.000 workers in nonprofit organizations had total annual wages in 1993 of $3.95 billion, which, as economist Glenn Pascal has observed, is approximately equal to the total Washington payroll of The Boeing company for the same period.(1)
"Nonprofit organizations are all around us," writes an observer. "We donate money to them. We give government grants, tax advantages, and postal subsidies to them.... The nonprofit sector of the economy is large and heterogeneous, and it is growing.... this hidden part of the economy; it is part of our dally lives, but at the same time it is an enigma."(2)
The sector is an enigma for a list of strong reasons --
This report has its origins in the thought that better understanding of the nonprofit sector can lead to increased cooperation for mutual advantage between it and the Department of Community, Trade and Economic Development. The focus of this paper is assessing the specific opportunities and challenges for collaboration in the areas of economic development and trade. Clearly many community development goals may also be served by collaborations between nonprofit organizations and state agencies.
The similarities between nonprofit organizations and for-profit firms are many. They suggest important opportunities for new relationships that will advance the state's economic and community development agendas while serving the interests of the nonprofit organizations as well. The differences between nonprofits and for-profits are also important to some of the ideas that will be discussed here.
To start with similarities: many nonprofits are employers. They purchase large quantities of goods and services, they make investments in buildings and equipment, and they are themselves suppliers of important goods and services both within and outside of Washington. To be successful, nonprofits need access to capital, technical and professional expertise, and a stable and supportive regulatory climate. In these respects they are little different from the far larger number of for-profit enterprises which surround them in Washington communities.
At the same time, there are also significant differences. Nonprofits have less reason to focus on immediate financial returns than do for-profit organizations. Their access to community support, both in the form of volunteer efforts and through grants and donations, allows them to offer programs that need such support to operate in the black. This greater financial flexibility allows nonprofits to experiment and extend themselves in ways which would pose unacceptable risks In for-prof it organizations of similar size.
The central section of this report goes into considerable detail in presenting statistical data about nonprofits which has been found in published state and federal materials. Doing so requires, as well, detailed attention to the definitions and procedures that underlie the available information. This section also presents special tallies from administrative files which were done in support of this project by the Office of the Secretary of State, the Employment Security Department and the Department of Labor and Industries. The presentation confirms and extends the impression that nonprofits are significant economic entities in their own right and, further, that the sector taken as a whole plays a significant role in Washington's economy.
The next section considers practical steps the Department of Community, Trade and Economic Development can take to increase the ways it works with nonprofits to mutual advantage.
The concluding sections of the report are more theoretical In nature, First, there is a presentation of a variety of theories that have been advanced with the goal of providing a rationale for the existence of a distinctive category of organizations created on a nonprofit basis. This review suggests a variety of strong reasons why the Department of Community, Trade and Economic Development (and, for that matter, state government in general) should actively work to sustain a healthy nonprofit sector.
Then, finally, the report recommends that the director of the Department of Community, Trade and Economic Development should commit departmental resources to this cause: in the short run, more direct attention to nonprofits as allies and collaborators in achieving the department's mission; more generally, a long-term commitment to raising the visibility of nonprofit issues in the course of policymaking and program administration throughout state government. The present lack of attention to such matters makes it impossible to tell what opportunities are being missed. The evidence of this report suggests that there are many exciting possibilities ahead.
In the Fall of 1993. a group assembled by The Evergreen State Society met at the Seattle off ices of the Department of Trade and Economic Development with the Director of the Department, Mike Fitzgerald. The purpose of the meeting was to explore ways the nonprofit sector might work more closely with his department in support of a strong economy In Washington state and to further the work of the department.
At that meeting, there was general agreement that data about nonprofits In Washington is difficult to obtain and to interpret. Following the meeting, the department asked the Society to prepare a briefing paper presenting any statistical Information that could be found to characterize Washington's nonprofits. The Department also invited discussions both of opportunities related to its responsibilities that might more fully involve nonprofits and of the relationship between nonprofit organizations and state government more generally.
This paper is the result. It has been prepared with a great deal of very generous and productive assistance from state officials, academic researchers, and other interested people. A list of many of those people follows. It must be noted, however, that none of these people has any responsibility for any errors that remain in the text.
[Note: A few corrections have been made before reprinting July 15, 1994, and January 1997. -- Putnam Barber Seattle, January 10, 1997.]
On May 1, 1994, there were 31,835 nonprofit organizations in Washington state. Figures from 2,449 reporting nonprofits show average employment during 1993 of 158,000 workers, with total wages of $4 billion and average wages of $24,958 for the year. 6,998 nonprofit organizations in Washington were exempt from state and local property taxes; 4,740 were churches and related facilities, The combined impact of all exemptions from state and local taxes for nonprofits amounts to about $280 million per year, 2% of the total effect of all the various exemptions provided by Washington state law. A few years ago (circa 1988), there were 10,927 federally tax-exempt organizations in Washington. Financial reports from 2,805 of these show they held total assets of $7.6 billion, made expenditures of $9.8 billion, and received donations and grants of $930 million.
There is no common definition of a "nonprofit organization." Each of the government agencies whose figures were used to create this summary collects and publishes data in its own way, to administer the laws for which it is responsible and provide the public with information about agency operations and the effects of those laws. Filling in the details about Washington's nonprofits, then, requires a good deal of attention to the different definitions and procedures which are used by the reporting agencies In the course of their work.
The overall impression one gains from the statistics, in spite of all the footnotes and approximations, is nonetheless strong, In addition to the direct value of the services and programs they provide, Washington's nonprofits play a major economic role in the life of the state. They do so because there are a large number of them, engaged In a wide variety of tasks, for which they receive substantial income from their "customers" of various types and, further, because they supplement their earned income with gifts, grants, and tax exemptions that significantly expand the work they are able to do in support of their goals--many of which are of critical value to the people and communities of the state.
Because the division receives and records the registrations for all Washington corporations, it maintains a complete roster on a computer of nonprofit corporations In Washington.(4) As reported, at the beginning of May 1994 this roster included 31,835 nonprofit organizations.(5) The division uses its files primarily for administrative purposes, hence only limited identifying information is entered In the computer while the division microfilms a complete copy of the information filed with it by each corporation. The computer file is used to locate the microfilm records when responding to a request for information on a specified corporation, and, of course, to send annual renewal notices to the registered corporations. Since this file holds records of corporations of all types, it is not a ready source for descriptive summaries or other information classified according to the various types of corporations.
Simply registering as a nonprofit corporation with Washington's Secretary of State does not, in itself, confer any advantage as compared with a for-profit corporation or, for that matter, any other sort of business organization. To qualify as exempt from any taxes, to take advantage of Industrial (workmen's compensation) Insurance or low-cost postal rates, or to participate in any of the other state or federal programs that have specific provisions for nonprofit organizations will typically require that the organization apply and demonstrate eligibility in terms of further standards.(6)
The agencies which administer these programs maintain records which can be used to shed further light on the scope of the nonprofit sector In Washington's economy.
The federal Tax Code provides that qualifying nonprofit organizations are exempt from corporate income taxes and, further, that donations to some of these tax-exempt organizations may, subject to certain limits, be deducted from individual taxpayer's personal income taxes as well. Organizations which qualify for both are often referred to as "501(c)(3)s"--using the number of the section of the Tax Code which describes the conditions for qualifying for these Important benefits. Washington's Nonprofit Corporations Act permits corporations that have qualified under section 501(c)(3), and only such organizations, to describe themselves as "public benefit corporations"; this usage will be adopted here.
Section 501(c)(3) provides special tax treatment for organizations serving "religious, charitable, scientific or educational purposes." (8) There are many other sections of the federal income tax laws allowing exemptions from corporate income taxes for organizations serving other purposes. For practical purposes, only organizations which qualify under section 501(c)(3), though, may receive donations which the givers, in turn, may deduct from the income on which they pay federal personal income tax.(9) 501(c)(4)s are generally described as civic associations and organizations devoted to the promotion of social welfare; they are permitted to engage in any amount of lobbying but donations to them are not deductible on individuals' federal income tax returns.
Information derived from filings with the Internal Revenue Service can be used to create a statistical profile of some tax-exempt corporations active in Washington. There were, circa 1988, 3,600 recognized 501(c)(4) and 10,927 recognized 501(c)(3) organizations in Washington state. The difference between these large numbers and the even larger number of state-registered nonprofit corporations can be explained by several considerations. Many nonprofits incorporated in Washington are not organized for "religious, charitable, educational or scientific" purposes and are thus not eligible for recognition as 501(c)(3)s. Others do not expect to seek or receive tax-deductible donations and thus have no reason to complete the processes and pay the tees required for such recognition. And a large number of the Washington nonprofit corporations are no doubt churches.
The complications with the federal data are not limited to the difference in the numbers of organizations, however. Information about the financial activities of exempt organizations is available only for a portion of the federally-recognized group -- those which file completed annual returns (known as "990s" after the number of the form). Generally organizations which receive less than $25,000 in revenue in a given year are not required to file at all. In addition there are commonly delays in filing and processing the 990s for the organizations that do file. As a result the latest information which is available in published form covers a period centered on the year 1988. It presents financial information for 2,865 501(c)(3) organizations which filed 990s for that period. There is also information about an additional 576 organizations which filed form 990PF, used to report the activities of grant-making foundations.(10)
In addition to these public benefit corporations, the Almanac reports further financial information for foundations and fund-raising coalitions. These figures are presented separately to avoid double counting (on the theory that a significant portion of their expenditures will also be reported as grant income by another organization). The total public support reported by 576 Washington foundations circa 1988 was $12 million. Their annual expenditures were $131 million and they controlled $1.4 billion in assets at the end of the period.
In sum, then, the public benefit nonprofits of Washington reported total assets of $8.99 billion around the year 1988. This number does not include the assets of the more than 8,000 such organizations which did not report financial information to the IRS, nor does it include the assets of the religious organizations which did not file reports.
Information for some "religion related" organizations does make its way into the Almanac (from churches which file 990s voluntarily or because they have obtained 501(c)(3) recognition for some reason, possibly to qualify for grants for charitable but not religious purposes such as day care or senior services). The 142 such organizations reported $1.6 billion In assets. Analysis of figures from the state Department of Revenue (which will be explained more fully later) allows an estimate of the real property of tax-exempt churches at about $10 billion. There is, however, no reliable way to determine how much overlap there is between these two figures. A conservative approach assumes an overlap 100%. From this analysis, it can be said with confidence that the assets of a portion of the tax-exempt, tax-deductible nonprofits in Washington exceed $17.4 billion.
In addition to property tax exemptions, there are 26 other types of exemption for which some nonprofits are eligible. The total effect of these exemptions is a reduction in potential revenues estimated at $88.5 million a year. A sense of the meaning and effect of these exemptions is conveyed by listing a few of the larger ones: Membership fees, contributions and grant income received by nonprofit organizations are exempt from business and occupations (B&O) taxes, reducing the taxes these organizations might otherwise pay by about $9.3 million each year. Nonprofit nursing homes are exempt from B&O taxes; nonprofit and public hospitals pay a specified lower rate. These provisions reduce taxes for these organizations by $20.8 million a year. And tuition fees at private colleges, schools and kindergartens are exempt from B&O taxes, reducing their taxes by $17.4 million per year. Some of the other exemptions are very small (and a couple are not currently utilized at all).
It is worth noting that the exemptions with a small impact in proportion to the total of all tax receipts may nonetheless be critically important to the financial health of the organizations which are eligible to receive them. It is also worth repeating that all the tax exemptions and adjustments that have been created by the Legislature for the benefit of nonprofit organizations over the years account for lust 2% of the total impact on potential state revenues.(12)
Many of the entries refer to well-known Washington nonprofit institution -- major foundations, community organizations and charities. Others indicate some of the variety that makes this an interesting subject to study -- many public institutions appear through the presence of a grant seeking organization that works in support of their programs and activities; some trusts hold and distribute quite small amounts of money according to very specific and detailed directions from a donor.
It is easy to see why this directory would be of interest to grant-writers and other fundraisers. Each entry gives an address, some contact information, and a report of assets and distributions. For some trusts there is information about the limitations placed on the use of their assets, the procedure (if any) for applying for a grant, and a listing of sample grants. On the other hand, the directory does not include any narrative or descriptive statistics; It does have 60 pages of classified indexes. The figure 1,806 as the number of charitable trusts was found by counting the entries in the index.
Another state agency has information that might allow identification of nonprofit employers. Since the early 1970s, workmen's compensation coverage has been available for volunteers through the Department of Labor and Industries. Knowing the extent of contributions of volunteer time would cast light on one of the distinctive characteristics of nonprofit organizations. Labor and Industries' Research section created a special tabulation for this report from the files of the industrial insurance program.(17) They found that 407 firms have used the volunteer classification and reported 3.6 million hours of volunteer time in 1993. (18)
No published data exist on the geographic distribution of nonprofits in Washington. With the cooperation of officials in three departments where records of Nonprofit organizations are kept, it has been possible to assemble the information summarized in Table 1. The table is divided into 14 "ZlP-code regions" -- formed by tallying together information for organizations whose address shared the same first three digits and thus were located in rough geographic proximity.
|
ZIP -code Region |
On file with Sec. of State | ES: Firms Reporting | ES: Total Employees | ES: Total Wages | ES: Units < 6 workers | L&I: Total Firms | L&I: Employee Hours ('000) | L&I: Volunteer Hours ('000) |
| 980xx King County (not Seattle) | 4,773 | 256 | 10,125 | 245,688,610 | 111 | 26 | 8,362 | 240 |
| 981xx Seattle & Bain-bridge Is. | 6,457 | 755 | 62,620 | 1,733,294,107 | 317 | 47 | 55,348 | 788 |
| 982xx NW portion | 3,796 | 261 | 11,155 | 210,976,917 | 109 | 51 | 10,245 | 234 |
| 983xx Olympic Penn., Pierce Co. | 2,776 | 133 | 6,429 | 140,404,174 | 58 | 40 | 4,052 | 163 |
| 984xx Tacoma & environs | 2,519 | 163 | 14,574 | 371,756,534 | 58 | 20 | 8,924 | 109 |
| 985xx Thurs-ton Co. | 2,578 | 134 | 7,620 | 179,390,560 | 62 | 114 | 102,641 | 1,025 |
| 986xx SW portion | 1,643 | 134 | 6,434 | 138,788,062 | 62 | 24 | 4.300 | 84 |
| 988xx North Central | 1,174 | 86 | 2,202 | 42,033,178 | 48 | 23 | 3,161 | 40 |
| 989xx South Central | 1,229 | 123 | 8,147 | 167,483,507 | 41 | 13 | 5,825 | 121 |
| 990xx Spokane vicinity (not city) | 392 | 10 | 253 | 2,421,849 | 5 | 5 | 2,793 | 2 |
| 991xx NE portion | 814 | 38 | 1,188 | 18,414,719 | 17 | 15 | 13,128 | 686 |
| 992xx Spokane | 1,443 | 203 | 18,435 | 461,638,040 | 64 | 11 | 4,878 | 44 |
| 993xx SE portion | 1,214 | 110 | 5,480 | 112,811,372 | 33 | 14 | 3,170 | 58 |
| 994xx SE corner | 80 | 6 | 270 | 5,358,375 | 0 | 1 | 269 | <.5 |
| Out of state; unknown | 947 | 37 | 3,411 | 121,672,712 | 8 | 3 | 16 | 86 |
| TOTAL | 31,835 | 2,449 | 158,349 | 3,952,132,716 | 993 | 407 | 227,112 | 3,611 |
NOTES: Data from special tabulations. Office of the Secretary of State, Corporations Division: active and inactive nonprofit corporations registered as of the beginning of May 1994. Washington Department of Employment Security, Labor and Market Analysis Branch: Units coded as nonprofit organizations with average monthly employment and total wages reported for 1993. Washington State Department of Labor and Industries, Research Section: Firms reporting any volunteer hours (which includes many government agencies) with total paid and volunteer hours worked in those firms in 1993. See accompanying text for important considerations affecting interpretation of this table. Minor adjustments have been made to simplify the presentation.
Examining the geographic spread in Table 1 shows the distribution of nonprofits exaggerates the well-known pattern of residence of the people of the state. Over 35% of the organizations registered with the Secretary of State have addresses in King County, where approximately 31% of the people in the state live. Over 50% of the organizations are located in King and Thurston Counties plus the city of Tacoma (ZIP codes starting with 980, 981, 984 and 985). The employment figures are even more concentrated, with 41% of the employers and 46% of employees in King County alone.
There are some striking variations in the geographic pattern of wages. As might be expected, the average annual wage is highest ($27,679) in Seattle; the same calculation for organizations with ZIP codes starting with 990 (near but not In the city of Spokane) comes to $9,573 while the average wage in Spokane itself, $25,401, is slightly above the average for the state as a whole -- $24,953. There is no ready explanation of what might cause this sharp variation. But it is still clear that working for nonprofit organizations provides more income to a higher proportion of employees in the urbanized heart of King County than it does in the more rural eastern part of the state.
The information from Labor and Industries has to be interpreted with caution since there are a small number of reporting units and it seems likely that many of them are government agencies. It is impressive to contemplate the contributions volunteers make, though, even when based on these limited data. Taking an estimate of the average hourly wage in Washington in 1993 of $14.50, the volunteers working in these 407 organizations made a contribution worth roughly $52 million.(19) (There are, of course, many more volunteers at work in the state.) A disproportionate number are reported from Thurston County where many state agencies provide workmen's compensation coverage for volunteers. Nonetheless, these organizations and significant contributions of volunteer time are found in every ZIP-code region.
The information presented in Table 1 confirms the view that nonprofit organizations are substantial economic entities and that they play an important part of community economic life in every part of the state. Even rural Asotin County (with less than 20,000 population) benefits from the work of 80 nonprofits, a ratio of one for every 250 people In the area. There are about 160 people per nonprofit statewide. Looked at in terms of area, there is about one nonprofit for every 2 square miles of the state, but in Seattle that number rises to over 75 per square mile. In fact, in Seattle, nonprofit employers report 750 employees per square mile!
It's natural to be curious about what all these organizations and their employees and volunteers do. Information compiled for this report can shed some light on that question, especially for the nonprofits that are exempt from either federal or state taxes.
As mentioned earlier, The Independent Sector obtains a copy of the IRS annual reporting form (called a 990) for all 501(c)(3)s. Summarizing the financial data from these is the major purpose of the annual Nonprofit Almanac. For the 1992-1993 edition, the authors experimented with coding the data using a newly developed taxonomy designed specifically to be used for the activities of nonprofit organizations. Since most filers provide information on their mission on the 990, this discussion can be based on the full 10,927 organizations which reported from Washington in the period circa 1988. A tally of organizations in terms of this description of their programs is shown in Table 2.
Washington's nonprofits are concentrated in only a few of the 27 categories. Three quarters are found in six (plus "unknown"); 805 Philanthropy and Voluntarism (including 673 "private foundations"): 984 Arts and Humanities; 968 Health; 1,230 Human Services; 1,350 Education; and 1,590 Religion. "Unknown, unclassified" accounts for 1,407. The Almanac also tallies the available financial information according to the taxonomy. The figures for assets are even more concentrated: these seven groups held 95% of the total for Washington. Just one grouping -- Health -- held 42% of all the assets reported.
| Fields of Service Classified from IRS Form 990 for 501(c)(3) Organizations (federal data) | Tally circa 1988 | Property Tax Exemption Authorized under 84.36 RCW (state data) | Tally 1994 |
| Arts, culture and humanities | 964 | Libraries [040, 1854]
Radio/TV facilities [047, 1977] Art & History Museums [060, 1915] Performing Arts [060, 1981] |
17
2 120 60 |
| Education | 1,350 | Private Colleges [050, 1925]
Private Schools - K-12 [050, 1925] Student Loan Orgs [030(6), 1987] |
19
210 2 |
| Environment | 161 | Open Space, Park [260, 1967] | 62 |
| Animal related | 119 | ||
| Health general
Mental Health Disease, Disorder related |
628
170 147 |
Nursing Homes [040, 1891]
Hospitals [040, 1886] Dialysis Centers [040, 1987] Blood Banks [035, 1971] |
75
75 8 12 |
| Medical Research | 23 | Medical Research [045, 1975] | 10 |
| Crime, Legal related | 98 | ||
| Employment, Job related | 85 | Sheltered Workshops [035, 1970] | 70 |
| Food, Agriculture | 89 | ||
| Housing, shelter | 135 | Homes for the Aging [041, 1989]
Shelters for the Homeless [043. 1983] Orphanages [040, 1891] |
56
24 6 |
| Public safety | 106 | ||
| Recreation, Sports | 657 | ||
| Youth development | 334 | Youth Organizations [030(3), 1933] | 135 |
| Human services | 1,230 | Daycare Centers [040, 1973]
Red Cross [030(5), 1945] Nonsectarian Charitable Organizations [030(1), 1915] |
160
n/a 710 |
| International, Foreign affairs | 79 | ||
| Civil rights | 55 | ||
| Community improvement | 359 | Places of Public Assembly [037, 1981]
Nonprofit Fair Associations [480, 1975] |
195
5 |
| Philanthropy, Voluntarism | 805 | Nonprofit Merchandise Sales [030(1), 1983]
Fund-raising combined appeals [550, 1993] |
10
n/a |
| Science | 92 | ||
| Social science | 13 | ||
| Public affairs | 204 | ||
| Religion related | 1,590 | Churches [020, 1854]
Church Administration [032, 1975] Church Camps [030(2), 1971] |
4,550
40 150 |
| Mutual/membership benefit | 27 | Water Distribution Co-ops [250, 1965] | 215 |
| Unknown, unclassified | 1,407 | ||
| TOTAL | 10,927 | 6,998 |
NOTES; 501(c)(3) data from Virginia Hodgkinson, et al., Nonprofit Almanac 1992-1993 (San Francisco: Jossey-Bass, 1992), page 562. Nonprofit tax exemption data from Department of Revenue, Tax Exemptions -- 1994 (Olympia: 1994), pp. 38 ff. The numbers in brackets are the sections of the Revised Code of Washington establishing the associated exemption; the dates are the years in which the exemptions were established by the legislature. See text for important considerations affecting interpretation of this table.
Presenting information in this way requires, of course, some compromises and some guessing, since the two classification schemes vary widely. Most important, the state category "Nonsectarian Organization" (with 710 qualifying organizations) represents a general-purpose charitable category and probably does not correspond very well with the narrower "human services" category used for the IRS data. And, of course, significant numbers of the group "unknown, unclassified" in the IRS data would end up in one or another of the other categories, corresponding to the state statutes, if more information were available.
There are some significant differences between the distributions of federal and state tax-exempt organizations shown in Table 2. There are far more churches that have filed for state property-tax exemptions than report to the IRS (almost 3 times as many), and there are far fewer philanthropic and voluntarism organizations with state tax exemptions than federal 501(c)(3) status -- the state number is less than 1% of the federal. In the health category -- where there are many more federal entities than state -- there may be many federally recognized organizations that are co-located on one parcel of land. The federal "education" category extends to a wide variety of organizations with an interest in educating the public at large about the subject of their concern and is not limited, as the corresponding state categories are, to formally organized (and in most cases accredited) schools and colleges.
The differences between state and federal qualifications for tax-exemption are often striking. Notably, there are nine categories of federal exemption which are not distinctively recognized in the Washington tax-exemption statutes at all. Two -- recreation with 657 organizations ($55 million in assets); public affairs with 204 organizations ($4 million in assets) -- are familiar and broadly supported sorts of nonprofit organizations which are not explicitly recognized in Washington state as eligible for property tax exemptions.
Examining Table 2 reminds us once again of the range of missions and goals which have been adopted by nonprofit organizations. It is worth underscoring, too, that these lists reflect only a portion of the nonprofits in Washington -- the ones which are recognized as tax exempt by the IRS or quality for and receive property tax exemption in the state. More than 20,000 other nonprofit organizations have been formed in the state. Table 2 (and the information available from other sources) cannot convey any information about these other organizations' goals and purposes.
Second, the organizations afforded property tax exemption by the state and/or recognized as charitable by the Internal Revenue Service meet a range of needs and provide necessities and benefits without which our state and its communities would be immeasurably poorer. The list of fields in which they work and of purposes which they serve generates no surprises. But the sheer number of the organizations that have been documented in these tables (and the even larger number of other organizations for which no corresponding information is available) is striking.
The Executive Summary reports: "The aggregate economic impact of cultural organizations included in the study is impressive. In the time period covered in this survey, some $182.7 million in business activity was generated in King County by cultural organizations and patron spending. As part of this activity, some 8,853 jobs and $96.9 million in labor income were created. Of this total activity, aggregate spending by cultural organization patrons was nearly $91 million. Patron spending includes $46 million in tickets and admission fees."
During the same period, these organizations also "report tax payments to local, state and federal governments of $2.4 million. They made capital expenditures in 1991 of $4.2 million."
Needless to say, if similarly detailed information could be obtained for all the nonprofits in Washington, it would reveal a sector filled with productive activities, undertaken by organizations of every size and character, contributing greatly to the economic vitality of the state and to the economic health of every region.
Many elements cooperated, of course, to bring about this result. And this is not the place to tell the whole, complicated story. A few quick strokes: Washington's Nonprofit economic development organizations (and especially the Economic Development Council of Seattle & King County) worked closely with state and local government officials to identify sites and eliminate roadblocks-which is, after all, an important component of the mission of an EDC. To introduce the executives of World Vision to the area, the EDC looked in part to counterpart executives from international aid organizations (such as C.A.R.E.) and local community groups (like the Concillio for the Spanish Speaking). The long tradition of strong personal and corporate support for charitable causes on the part of Washington business leaders gave a solid foundation to the connections that were established between the nonprofit's executives on inspection visits and local business leaders. And the fact that a parcel of land could be found that was available as a donation from a company that had already supported World Vision, before there was any suggestion that relocation might occur, was critical in securing a favorable outcome.(21)
The Asia-Pacific Economic Cooperation Heads of State Meeting in Seattle in 1993 brought new attention to the area's strategic location and strong existing ties throughout the APEC region. Hence there has been increased attention locally to the possibility of expanding this region's complement of nonprofit and nongovernmental organizations with a focus on reinforcing these relationships. The World Vision relocation decision represents one significant step in that direction; it is well worth exploring the potential benefits of others.(23)
It is clear though that this sort of opportunity comes along rarely. To build an economic development program around the hope of finding a succession of organizations like World Vision to add to the mix of employers in Washington would lead to long waits between successes and many disappointments. For one thing, as Glenn Pascal points out, many nonprofit organizations depend heavily on highly focused local financial and volunteer support.(24) Such organizations will not find easy to relocate, no matter how strong the enticement at the receiving end. And most communities have a full complement of service organizations in place. Adding new capacity to meet local needs in Washington state might well result In overlapping activities and competition for local funding which would not be consistent with the idea of encouraging sustainable nonprofits in Washington. On that point might be added that nonprofit organizations, competing for community support from a limited list of over-committed donors, may not view the arrival of new nonprofit organizations in related fields of service with unalloyed enthusiasm
The Merger Plan touches on the potential of working closely with nonprofit, environmental and community organizations frequently. The discussion and recommendations here provide additional rationale for that emphasis and offer further concrete steps which the new department can take to draw Washington's strong and diverse population of nonprofit organizations into cooperative relationships. Doing so will clearly advance CTED's mission and simultaneously build the capacities of Washington's nonprofit enterprises.
CTED currently identifies biotechnology, environmental industries, film and video, forest products, recycling markets, software, tourism, and community diversification in aerospace as key sectors targeted for development attention. In each sector, the department's plans include fostering linkages to build internal strength within the sector and identifying key nonprofit organizations to provide a common meeting ground for evolution of sector-wide strategies and sectoral competitiveness. Personnel, and firms, in each sector typically participate actively in a variety of professional and trade association. Sometimes these are based in Washington; often they are national or international in scope. To the extent that the department's work can enhance the presence of Washingtonians in these organizations, the long-term strength of the corresponding sector in Washington's economy will be enhanced.
Further, in each of these sectors there are, to a greater or lesser extent, nonprofit enterprises playing important roles alongside the for-profit firms. This point can easily be demonstrated by reference to the connection between Washington's thriving nonprofit theatrical industry and the presence of skilled workers critical to successes in film and video production. Importantly, the mission and activities of these related nonprofit enterprises are not necessarily well characterized by traditional understandings of the role of trade associations. Often their roles include creating the forums in which discussion and cross-fertilization convert ideas into economic development strengths. It is worth attention to the details of each sector's internal dynamics to identify, and call attention to, similar productive synergies in other areas as well.
In any case, when documenting the existence of a thriving community of existing firms in any industry, it is a good idea to extend the presentation by citing the presence of strong nonprofits -- research organizations, trade associations, enthusiasts' clubs, standards-setting bodies and the like.
It is worthwhile to focus for a moment on the general benefits of nonprofit organizations as employers and participants in a community's economic life. Though the range is wide on every dimension, it is safe to say that the limited data presented earlier and common experience both support several broad impressions. As enterprises, nonprofits tend to offer higher than average wages, to be unlikely to pose hazards to the environment, to be themselves civic-minded and to employ large numbers of highly educated, civic-minded workers, to be easily located in existing buildings, and to place low overall demands for development of new infrastructure. These are characteristics marking firms most communities seek to recruit and would like to see expand.
Further on the same theme, nonprofit organizations are frequently active participants in national and international networks. As such, they spread the word about Washington's attractions ant strengths among opinion leaders throughout the world.(26) Some nonprofits also make signal contributions to a cosmopolitan atmosphere in Washington and thus support efforts to attract international trade and tourism to the state. The value of nonprofits as economic neighbors also includes the research and development work they do, plus the fruitful interchange of ideas that characterizes their communications.(27)
In many ways, then, nonprofit organizations embody attractive characteristics that make them attractive and welcome participants in the economy of Washington's communities. The qualities just described are closely aligned with the culture of many of Washington's leading industries; the differences between nonprofit and for profit firms are, clearly, smaller and less important than the features that bridge that distinction in organizational types. And further, as the information from the Employment Security Department and the Internal Revenue Services presented earlier confirms, nonprofits in Washington are "big business" in any sense of the phrase: employing hundreds of thousands of people, paying billions of dollars in wages, purchasing goods and services of all sorts for ongoing operations and capital investments, paying state and local taxes, and producing goods and services which are widely used by Washingtonians and, sometimes, key exports as well.
CTED recognizes that nonprofits are already linked by strong networks of formal associations and strong ties of informal communication and confidence. The Merger Plan describes a commitment to collaboration through such networks to expand the involvement of nonprofits and others "to integrate services for strengthening Washington's businesses, communities and families."(28) An example of acting as a catalyst in this way can be seen in the department's "Sustainable Washington" task force which has been meeting for several months to bring together ideas and policy recommendations from many points of view.
It is worth thought to seek ways to generalize this approach. As a short-term and continuing strategy, this implies adding "communicate with and involve a broad and appropriate range of nonprofit organizations" as an element of the communications plan for an increasing number of initiatives of the Department of Community, Trade and Economic Development. These initiatives can span the full spectrum of CTED's interests -- local, statewide, and international.
The program areas that have been brought together in the new department already have, of course, many strong links with a wide variety of community-based nonprofit organizations. Some programs, indeed, exist largely to provide state-level financial and programmatic support to local efforts of this sort. Others have invested continuing efforts in building strong working relationships with local counterparts in government and among private nonprofit organizations. These existing relationships offer a point of entry for an expanded effort to communicate with and involve local nonprofits in the department's work, a point of entry where the difficulties and costs of communicating by mass mailing can readily be avoided. Expanding local contacts in this way should be seen as a particular case of the general strategy of building local capacity.
At a statewide level, one early outcome of these efforts can be to enlarge the number of representatives of nonprofit organizations who attend meetings and conferences related to the department's programs and mission. That in itself is likely to be useful. It will be more useful from the start if the presence of colleagues from nonprofits is anticipated in the design of the sessions to create realistic opportunities for productive interchange. Increased general participation of this sort should be seen as a gradual process, though, and supported in a low-key way for the long-term future.
It is important, too, to keep in mind that nonprofit administrators face tight limits on resources and intense competition for time and attention.(29) If their participation in conversations about economic development and other aspects of CTED's mission is going to continue, it is going to have to be motivated by visible results that serve the nonprofits' goals as well as those of the department and the communities being assisted. Which is not to say that they will not recognize the theoretical strengths that grow from being part of a strong economy with a visible presence in the region -- only that there may well be a conflict between short-term views and a longer perspective when these possibilities are discussed.
National and international opportunities exist as well. Nonprofits already play key roles in supporting the presence of international visitors In Washington. One Reel Vaudeville brings performance troupes to Washington venues. WSU's ElderHostel program attracts hundreds of senior citizens to week-long explorations of intellectual and cultural frontiers in collaboration with nonprofits throughout the state. FIUTS (the Foundation for International Understanding through Students) helps the University of Washington attract international students who spend an estimated $30 million per year on housing, food and other goods and services each year. Arming nonprofits with the materials they need to promote Washington more generally as they conduct their own business outside the state is a straightforward step in the right direction. More difficult, but still worth exploring, would be the development of strategies to overcome the barriers to expanded participation in trade and friendship missions by representatives of a broad range of nonprofit organizations.
The results of these expanded communications will no doubt be a closer alignment between the activities of many Washington nonprofits and the mission of the Department of Community, Trade and Economic Development. Productive communications will, though, go the other way as well. Over time the personnel of the department will identify people from the nonprofit sector who serve as intellectual entrepreneurs on the frontiers of healthier families, more resilient communities, and more competitive businesses for Washington. Broader communication through links of this sort will help the department to build flexible networks In advance of need that can develop strategies and respond to challenges as they arise.
This strategy is one which is obviously made more promising by the recent merger. Both predecessor departments had developed good links to nonprofit counterparts (Community Action Agencies, Convention and Visitor Bureaus, etc., etc.) in the course of their work as separate agencies. Merging those two streams of collaboration, and generalizing from them to visualize the nonprofit sector in general as a counterpart to the Department of Community, Trade and Economic Development itself, is an important opportunity open to the new department in the early days of implementing combined operations.
There are existing initiatives that deserve expansion. Funding mechanisms that serve the goal of financing low-income housing have been extended to address the capital needs of nonprofit theaters and museums. Building on this base, collaboration in planning community development efforts with Washington's five Community Foundations is a small step and the further step of working with local government officials and others to encourage the formation of similar organizations to serve other parts of the stale is a logical progression.(30)
Indeed, it would be worth some general effort to create a clearinghouse on private-public partnerships that would be useful to local government officials and leaders of nonprofit organizations. An early outcome of such a project should be some rigorous clarification of the meaning of the word "private" in this context. A confusion and distraction result from obscurity as these efforts are described -- clearly both private nonprofits and for-profit businesses are worthy partners in appropriate circumstances. Sorting out which and when should be done carefully and thoughtfully. A further extension of this idea would be to work with community leaders throughout the state to increase levels of understanding concerning "hybrid" organizations (Public Development Authorities and the like), which are commonplace in some communities and unknown in others.
Although there is something to be said for the value of encouraging increased effectiveness among nonprofit enterprises of all sorts (and the work of the Washington State Office of Voluntary Action, when that program was active, demonstrated it well), it is also clear that CTED operates, as do all government agencies, within tight constraints on both financial and human resources. In such circumstances it is reasonable, indeed necessary, to focus efforts in strategic ways. CTED must do so with respect to the choice of which nonprofits to emphasize in capacity-building initiatives and in the design of services that support this goal.
One standard that can and should be used is to develop a matrix based on the departmental Initiatives presently underway. Some nonprofits are more closely connected to success In these areas than others -- inviting those makes obvious sense: those with specific resources for or interests in reducing violence among youth, increasing citizen service, improved workforce training, expanded use of advanced technologies, and recruiting new businesses for Washington. Cutting across those standards, it is possible to offer another set of complementary standards as well. CTED might well focus its efforts on those nonprofits which can be expected to be more effective in creating jobs, especially high-wage lobs, are linked to identified community needs, fill gaps in government or market offerings, and are credibly sustainable in the full sense of that term. From an economic point of view, CTED might well also concentrate on identifying ways to strengthen nonprofits that are directly supportive of firms in key industries, especially those that expand export-related opportunities. As CTED applies these standards to its work with nonprofit organizations it will find a broad range of statewide and community counterparts whose programs and activities routinely and significantly complement the department's "integration model" as represented by the "Venn Diagram" of correlated services to communities, businesses and families.
There are perhaps wider differences in other areas of management and finance. But for every advantage enjoyed by a nonprofit (the opportunity of some nonprofits to receive grants and donations, for example) there is likely to be an offsetting disadvantage, such as a general reluctance of banks to open lines of credit or finance receivables based on future donations.
Nonetheless, the department probably needs to anticipate challenges from some business people to any perception that its resources are being diverted or diluted by a new interest in nonprofit organizations. The economic justification for any new initiatives in this area must be carefully communicated. Thoughtful preparation will need to be given to bridging the gaps in vocabulary and perception that have grown up between these two kinds of enterprises.(33) And the stakes need to be kept low on all sides. It is unlikely that initiatives in this area will have immediate payoffs. Opportunities like the World Vision coup are few and far between. When they come along, though, a history of small successes and fruitful collaboration can make a critical difference. Given the breadth and strength that the nonprofits already bring to Washington's communities, opening up opportunities for small successes and seeking fruitful collaborations are worthy goals In themselves.
Yet there are deep differences of culture between the two sorts of organizations. Further, the statutes and regulations -- both state and federal -- which guide many programs include specific references to the corporate status of participants and recipients. For these reasons and more, a shift in the suggested direction will take time, diplomacy, and commitment from CTED. It will almost certainly require resilience to overcome setbacks, and to respond affirmatively to questioning from well-intentioned observers.
An important early step to address these anticipated difficulties should be taken by appointing a senior-level staff person In the department, one who possesses an appropriate background and the requisite interest, to serve as the "nonprofit desk officer," with the assignment of helping CTED take maximum advantage of the opportunities for increased effectiveness that can grow out of closer collaboration with nonprofits.
Americans have long accepted a general responsibility to concern themselves with the quality of community life. We have created many ways to see to it that benefits which cannot be realized through the work of individuals acting alone are nevertheless present, even prevalent, in our communities. By doing so, we enrich people's lives in countless ways.
Two instruments are generally available when goals of this sort arise. Government provides a framework for the expression of the collective will and the achievement of common purposes. Organization (or, in a more old fashioned term, association) collects the interests and activities of many individuals in pursuit of common goals. Conventionally we make a deep further distinction: between organizations designed to benefit the organizers themselves, on the one hand, and organizations committed to benefitting in some way a wider group.
Most organizations are, of course, in the first category -- for profit. There are myriad forms. To attempt a catalog would take this report far from its purposes. It is important, though, to acknowledge that for-profit businesses succeed because they provide things of value to their customers, and to the community at large, in addition to the income and capital appreciation which flows to their owners.
Some other organizations in the first category -- called "mutual benefit associations" -- are often created as nonprofits. They serve many purposes. Few are tax exempt, but if they are, it is usually due to a belief that any revenues they receive are basically just "passing through" and are appropriately taxed when in the possession of the payers and the receivers.(34) To make this theory concrete, think of an association among the owners of a cooperative apartment building. The argument for this tax exemption holds that funds received by such an association are nothing more than a pooling of the maintenance (and perhaps, recreation) funds of the residents and, therefore, should not be subject to taxation during the brief period they are held by the association itself as an intermediary between the taxpaying households and the taxpaying providers of maintenance and other services.
In addition, there may be tax exemptions for some kinds of mutual benefit associations based on the view that further public benefits flow from their activities. In such cases, the exemption might well be based on the notion that it represents a token of recognition by society at large of the value of those benefits, and a limited form of encouragement to organizations which provide them. In some jurisdictions, for example, cemeteries and nonprofit associations managing them are exempt from certain taxes in spite of the fact that plots are sold at a price calculated to cover all costs of acquisition and operation. Presumably these deductions find an economic foundation in a general feeling that a well-run cemetery is a civic asset, and hence of value even to people who do not see themselves as personally benefitting from it.
When the words "nonprofit organizations" are used, though, people are likely to be referring to public benefit organizations. This is the category that includes the familiar civic institutions, public interest groups, hospitals, colleges, art museums, all sorts of community facilities and services. The fundamental character of such organizations derives from three principles: (1) they are formally recognized or chartered by some authority -- usually a state government; (2) they are organized exclusively for public benefit -- often expressed by saying their purposes are "charitable, religious or educational"; and (3) their revenues and assets may not "inure to the benefit of" any private person or interest. At the end of this report there are some observations on how Washington's government can improve the ways it facilitates, encourages, oversees and regulates nonprofits, especially public benefit organizations. To prepare for that discussion, the next few pages present a variety of arguments that may explain and justify special arrangements for nonprofit organizations in law and administration.
As we consider the rationale for the existence of nonprofits as a special category of organizations, it is good to back up and observe that the familiar forms of legal provision for nonprofit organizations are by no means a foregone conclusion. Recently the Home Office in the United Kingdom made a serious proposal that all mention of nonprofit organizations should be removed from British law! (35) Many academic commentators open or close discussions of nonprofit organizations in America with remarks like those of Yale University's Peter Dobkin Hail; "developments of the past 30 years have produced a nonprofit sector that barely resembles anything having to do with charity or serving the Public Good. Commercial and entrepreneurial nonprofits, supported by earned Income or government, have blurred traditional distinctions and muddied expectations."(36) Burton Weisbrod, in his influential text, laments the growing number of "for-profits in disguise," characterized by excess wages and an aura of sell-dealing, which "debase" the nonprofit sector.(37)
Concerns, like these, casting doubt on the legitimacy of the special status afforded some, or all, nonprofits, arise from time to time In Congress, in the news media, and among community leaders.(38) On the other hand, it is certainly a part of the American self-perception, reinforced by travelers' observations at least since the time of Alexis de Tocqueville, to see ourselves as a people who readily turn to voluntary and disinterested association when faced with a problem too large to be met by the acts of individuals and, for whatever reason, not being met in the marketplace or by initiatives of government.(39)
It is well to emphasize what the discussion which follows is not. . . . It is not a rationale for the granting of tax-exemptions to nonprofit organizations, but rather a consideration of reasons for the existence of the special category of nonprofit organizations in the first place. Further arguments can be advanced for providing exemptions from some or all taxes for certain classes of public benefit organizations; these arguments apply, though, to limited groups of nonprofits and are based on the assumption that more general provisions have been made for the formation and regulation of nonprofit organizations of many sorts.(40)
Looking through the considerable literature from academic and associational sources, one finds little unanimity on the rationale for the existence of nonprofit organizations.(41) From these sources emerge several themes that suggest a variety of explanations for the existence of nonprofit organizations; the following points provide a useful sense of the range of possibilities.
A modem version of this rationale is sometimes found in discussions of tax-exemption which focus on the immediate impact on government revenues that will result. Proponents of the exemption in question will sometimes demonstrate that the institution in question reduces burdens on taxpayers by providing services that would otherwise require government action and expenditures. In fact, in some jurisdictions require a showing that a given institution in fact meets this test is a precondition of recognition as tax exempt.
Certainly, too, nonprofit organizations play an important part in the lives of millions of Americans who work on a voluntary basis accepting continuing responsibilities of every sort. It is impossible to imagine the same sort of commitment being made to for-profit organizations. And sustained effort on behalf of a complex cause necessarily depends upon an organizational framework in which the efforts of individuals are combined. This sort of charity is more difficult to measure, and hence more difficult to observe, than the billions of dollars that are contributed each year to causes of all sorts. It is no less Important to the quality of life In our communities. Further, the opportunity to work in this way is widely regarded as a source of great satisfaction, even joy, by the volunteers themselves.(42)
Another way of developing this theme is to point to the fact that nonprofit organizations are often producers of "public goods" -- i.e., goods or services which can easily be used by very broad groups of people but for which it is difficult to collect payments from users.(43) A classic example of such a public good is found in lighthouses and other aids to navigation. Many public goods are, of course, provided (like lighthouses) by government. It would be beyond the scope of this discussion to develop a rationale for distinguishing those which can draw upon the greater powers of government and those which rely on civic spirit for their support. In the latter case, the generosity of a few public-spirited supporters can be seen as substituting for large numbers of small payments from beneficiaries.
This kind of reliance on the support of a few for benefits enjoyed by many can also be seen In the dues structures of many membership associations. Steeply rising prices in the upper reaches of the sliding scale suggest general agreement among the members of the association that the larger organizations among them will sustain pro active programming while smaller members will be expected only to cover the marginal cost of servicing their memberships.
Even in the case of "divisible" goods (like theatre tickets and counseling sessions) somewhat similar mechanisms may be seen. The base price of the item is often kept low, to sustain the operation of the organization, provide the excitement and other benefits of widespread use of its services, and make its offerings available to a broad segment of the community. At the same time the average revenue received per unit is increased by encouraging donations from those who are particularly committed to the activity or simply better able to afford a contribution of this sort.
Contract failure is found when a service is difficult to evaluate in advance (e.g., counseling) or when customers typically cannot exercise active judgement for themselves because of infirmities or disabilities. Because nonprofits cannot distribute any profits to individuals, This view holds, incentives to exploit customer ignorance do not exist; such organizations can operate in 'an environment of trust.(44)
Market failure occurs frequently, of course, in cases where "free riders" take widespread advantage of producers of the kinds of public goods mentioned earlier. In such cases it may be so difficult for the producers to collect payments from the beneficiaries of their services that the service ceases to be offered at all, to the general detriment of the community. The political authority to collect taxes is one solution to this problem; the moral authority of a strongly supported community nonprofit offers another.
In earlier times, there seems to have been a view among many Americans that some forms of activity should be undertaken In a special realm, free from the harsh pressures of the marketplace. To illustrate this point, architectural historians cite the borrowing of the forms of classical temples for use in constructing museums, galleries and libraries -- in this realm, "cultural" values were upheld. In return for undertaking to operate the organizations in a noncommercial fashion (with free services, for example), the organizers were permitted to adopt a form of organization exempted from some of the burdens and controls which were Imposed upon for-profit firms. It is perhaps "old fashioned" to see things in this way today. Nonetheless, some of the preconceptions that enter discussions of nonprofit organizations grow from the notion that they exist to undertake activities which are, by their nature, unsuited to commerce.
Clearly, too, there are services and activities which our society is reluctant to entrust entirely, or at all, to government. The first amendment, already mentioned, points to one that has been a part of American life since earliest times: a suspicion of any "established" religious order. Whether the alternatives are a small proportion of the total activity, as with primary schools and libraries, for example, or the principal social institution with minor government counterparts, as with theatre companies and recreational camps, there is clearly a strong preference for maintaining the alternatives, even at considerable cost.
In this context it is well to remember, as one concluding example, the existence of political parties and the panoply of other politically motivated organizations -- in this case even more than the others it is reasonable to see nonprofit organizations as representing the well springs of democracy itself. Limits are often placed on the activities of political nonprofits in light of the long-standing American tradition of fearing the ascendancy of partisanship in political life. But in political affairs, as in many others, nonprofit organizations and government institutions cooperate to serve the public interest frequently and routinely. In most cases, this cooperation goes forward unremarked and unappreciated. Only when something goes wrong does the boundary between the world of associations and the responsibilities of government become hazy, or contested.
"Nearly one million charitable, educational, religious, health and social welfare organizations create, nurture and sustain the values that frame American life. They promote altruism, in a society that reinforces self-interest; community, in a society that rewards individual achievement; and pluralism, in a society sometimes threatened with divisiveness. They provoke, challenge and question. They also teach, mediate, and heal."(45)
There are of course many nonprofit organizations that exist to represent, often forcefully, a point of view which their organizers believe to be in the best interests of society as a whole. Preserving the opportunity to develop such views and to offer them for public consumption or to influence policy makers is often seen as a major raison d'etre for the nonprofit sector. This sort of activity on the part of nonprofits is explicitly recognized by the federal tax code, which allows a tax-deductible (501(c)(3)) organization to expend a portion of its revenues on lobbying and related activities and also provides a separate section (501(c)(4)) under which organizations may maintain tax-exempt (but not tax-deductible) status while committing an even larger portion of their energies to such activities.
These sorts of activity can be valued from two different but persuasive perspectives. One can look to nonprofits for their strength in mobilizing energy around large causes such as a concern for the environment or (in an older example) the construction of "good roads." Or one can value them for their freedom to provoke, to upset the apple cart, to advocate for unpopular causes, and to serve as watchdogs for under-represented interests wherever need may arise. Major transformations in American society are inextricably linked to action of this sort: the abolition of slavery, votes for women, and the imposition (and repeal) of prohibition are widely accepted examples.
On the community level, of course, it is common for nonprofit organizations to be formed to generate broad-based support, both political and financial, for the defining institutions of the place. Sports teams, museums, theatres, schools and colleges, public landmarks and even more intangible aspects of community character (the "look and feel" of neighborhoods as monitored by design committees for example) -- these are only a few examples of the sorts of good causes and good works which find their expression through the creation and operation of nonprofit organizations.
Carl Milofsky of Bucknell University points out that this view is, among other things, a "challenge" to the strictly economic analysis implied by references to market and contract failures. These "expressive activities" amplified by concerted voluntary action in nonprofit organizations are not, in this view, adequately explained by reference to the economic advantages they might be seen to bring to the participants.(46)
This long history is itself a strength that needs to be kept in mind. Because the possibility of organizing in this way has been present for a long time, nonprofits are found in every community. They control substantial assets and other resources. The things they do are of great importance and consequence for everyone.
Another strength comes from the fact that this is a familiar way for people to act. The idea of forming a nonprofit to address a need or serve a cause does not require a lot of explanation. People who share the goal will readily support taking that step, drafting the bylaws and filing the papers with the Secretary of State. (47) This, in turn, suggests another valuable characteristic of nonprofits: unlike the alternatives of raising the capital to start a business or advocating the creation of a government agency, the process of forming a nonprofit corporation is open and accessible. For all practical purposes, anyone (at least any small group) can create one. The process is also, in an attractive way, both civic and voluntary. The procedures are based on the vision of a group of concerned citizens coming together to form an association, adopting rules for its operation, and then regularizing those decisions by recording their outcome in a public place. One need not be sentimental to recognize that many important community goals have been met in the past as a result of that sort of process. Nor need one be sentimental to believe that further good will come from new organizations created In this way in the future.
Bringing a new nonprofit into existence does not, of course, guarantee achievement of its goals. The possibility of doing so, though, gives a structure to the effort which may well be a necessary, and certainly is often a desirable, first step.
A contrast with the purposes of the for-profit Corporations law is instructive. In that case, one fundamental purpose of the law is to regulate the rights of investors, particularly the right to share in the revenues of the organization (and to receive a portion of its assets if they are distributed). A great deal of the effort that is required for the formation of a for-profit corporation is consumed In structuring these rights. Many proposed corporations are never formed because intractable differences arise among the organizers around questions of this type.
By the simple device of saying that no distributions can be made, the nonprofit law lays most such questions to rest: when the organizers gather to put the organization together, those who contribute more do so with assurance that their greater support will be committed to the cause. If the enterprise is one that can be expected to generate income in the future, the organizers need not concern themselves with mechanisms for equitable distribution of any surpluses. They have agreed at the outset that any excess revenues will also be dedicated to the cause.
Along with noting that Americans are ready to form an association around almost any cause, observers also are often led to comment we are deeply concerned with fairness in everything we do. It seems clear that these two characteristic attitudes -- the associational spirit and a concern with fairness -- provide the twin pillars which undergird the prevalence and the strength of nonprofit organizations in our society.
In the context of a nonprofit organization, individuals with differing resources and differing levels of commitment can unite around a common cause. They can do so without the distractions that flow from detailed attention to equity as they marshall resources to begin the organization's work. If all goes well, they can continue to focus their attentions on goals and purposes because any financial success the organization may achieve is committed to further support of those goals and purposes and cannot be diverted to other, private purposes or gain.
Over the years, Americans have taken advantage of the opportunity to organize themselves in this way for an almost unimaginable range of purposes. For some organizations, the state tax exemptions which they receive make a critical difference to their ability to serve those ends because the exemptions help offset the limited revenues which can be obtained from services to the disadvantaged or from providing other public goods. For an overlapping group of nonprofits, tax deductible status -- the ability to convey to their supporters the right to deductions from federal income taxes for donations -- is also critical to their ability to accomplish their goals.
It is perhaps a commentary on the attention we all pay to taxes that these attributes of the nonprofit realm are the subject of so much attention. It is worth remembering that the majority of Washington's nonprofits operate while paying all the taxes, etc., which must be paid by any for-profit business entity with similar operations. It is well to recall, too, that many nonprofits exist that do not rely upon tax deductible donations to any appreciable extent . . . indeed, at all.
As the discussion on the previous pages suggests, there are In fact many strong reasons for organizing a nonprofit, and for society at large to encourage and facilitate doing so. Most of these reasons have nothing to do with taxes. The sheer numbers and the fascinating variety of nonprofit organizations provide the strongest arguments that can be advanced in support of the value of permitting, indeed encouraging, this form of organization. Nonprofits have proven themselves to be an extremely useful form of organization for responding to concerns about the quality of community life. Because this form of organization is so useful, it has been used again and again to
All of us share an Interest in seeing to it that these sorts of goals continue to be met in communities throughout the state of Washington. That's why there are so many thousands of nonprofits. And why we care about them.
MEMORANDUM
TO: Mike Fitzgerald, Director
Department of Community, Trade and Economic Development
FR: Putnam Barber
Re: Policy implications of this Study
Thank you for the opportunity to review accessible information about Washington's nonprofits. Thank you too for the chance to place that information in context with some theoretical considerations. Preparing this report has given me a challenging and satisfying opportunity to visualize and articulate the unique character of the contributions nonprofits make to Washington's communities. Before concluding, I would like to underscore some strong policy implications that, to my eyes, emerge from the accompanying report.
The data assembled early in this report lead toward three conclusions:
Even with the limited information available today, you can be confident that investment in some new program initiatives will open valuable possibilities in the short run and build a foundation for continuing advantageous cooperation between your department and nonprofits. The suggestions for the Department of Community, Trade and Economic Development include:
There is a thought-provoking contrast between the size of the nonprofit sector in Washington and the limited attention given to its affairs by state government agencies and officials. In spite of the limits on available information, the data collected for this report clearly show that nonprofits in Washington draw upon an enormous commitment of energy and resources to accomplish critical purposes in every part of the state. Yet almost no systematic attention is paid to these organizations in either regard -- as economic enterprises on the one hand, as producers of public benefits on the other.
State officials now give some attention, and provide some guidance for policy, with respect to honorable fund-raising practices, the proper management of charitable trusts, and the effects of nonprofit tax exemptions on the revenues of the state. But no agency or official routinely prepares reports on the activities or well-being of nonprofit organizations in Washington Neither the legislature nor the administrative branch publicly reviews as a matter of course the state of Washington's nonprofit sector. There is no generally accepted forum for discussion of the effects -- for good or ill -- of laws and regulations affecting nonprofit organizations.
With the goal of encouraging a wider view of the intersection between nonprofits and the goals of public policy, a few pages of this report present a wide range of views of the roles nonprofits play in American communities. This review highlights the roles nonprofits play in mobilizing charity, compensating for market failures, providing an alternative to government, and expressing civic values. For these reasons and others, the citizens of the state have a broad and important interest in securing the maximum benefit from the way the state goes about facilitating the creation of and supporting or regulating the operations of nonprofit organizations. Taken together these several themes suggest that a wide variety of vigorous nonprofit organizations is an essential feature of healthy communities, and that the capacity to create new ones provides an enormously valuable foundation for a lively civic culture.
From that point of view, the present lack of attention to the effect of state programs and policies on the condition of Washington's nonprofits is a cause for concern. Damage may be being done that could easily be avoided. Opportunities may be being missed that could easily be seized. As things stand today, there i