Too many for what, exactly?

Next month I'm attending a discussion gathering of foundation staffs for which the invitation begins, "As non-profits grow in number and stretch available resources..." Notice that this premise is stated as simple obvious fact: that the number of non-profits has been growing faster than the available funding for them. That's a widely-believed factoid which has made it into the mainstream media; its a commonplace among foundation staffers. It is easily the most-common reaction I hear to this recent report that my foundation published online.

The thing is, as stated it simply isn't true: the number of non-profits in the U.S. has not grown faster than overall non-profit revenues, indeed hasn't even kept up with the growth in charitable giving.

Independent Sector says that non-profits roughly doubled in number from 1980 to 2005; or put another way, that non-profit employment doubled from 1977 to 2001. The IRS reports (see Table 16 there) that the number of tax returns filed by non-profits increased by 138% from 1985 to 2002. [It makes sense that this increase would be a bit higher than the overall creation of new groups because the filing threshold has not been indexed for inflation.] So okay let's take that basic premise as documented: that there are somewhere around twice as many non-profits as a quarter century ago.

That same IRS table shows that total non-profit revenues increased by 112% above inflation from 1985 to 2002. (The table shows raw totals not adjusted for inflation; I applied this inflation calculator which uses the official federal Consumer Price Index through the years to make conversions.) And apparently non-profit spending has not been increasing as fast as have the revenues, because the IRS figures show total non-profit fund balances increasing by 161% above inflation in the same period.

For some corroboration I checked the printed Giving USA 2005 report: it says (page 26) that total charitable contributions in the U.S. increased by 148% above inflation from 1980 to 2004. [The heavy growth has been in non-religious giving: giving to religious organizations grew only 66% during those years (page 37).]

The time periods of these various figures don't match up exactly, and obviously there may be large differences between types of non-profits. With all that stipulated, it is clear that overall this particular piece of conventional wisdom is not rooted in reality: the booming growth in this sector is not at all "stretching available resources". At a minimum, arguments that we now have "too many non-profits" need to be driven by a different issue.

Progressive pricing of education

The New York Times seems to have just discovered, in a front-page story today, the way that private colleges price their services in the U.S.: charging families higher or lower tuition based on what they're able to pay. I'm not sure why this is news -- when I was in college the financial-aid office was perfectly candid about it.

Maybe its just the cute news angle they found, about several colleges which only woke up to the game recently and discovered that raising its tuition made it seem like a better school. So they raise the tuition by 18% and the financial-aid pool by 20% and promptly start getting more applications, because full-cost-paying families assume that a place that costs more must be better. (Or perhaps because .edu-world currently offers its customers no single quantifiable measurement of quality other than sticker price, and bitterly resists attempts to create one such as the US News and World Report rankings.)

I was surprised at just how progressive private-college pricing has become: "aid is now so extensive that more than 73 percent of undergraduates attending private four-year institutions received it in the school year that ended in 2004, not even counting loans." And I happened recently in my office to hear, from the executive director of an association of small Midwestern colleges, another point made in the article: "some students may not even apply to private colleges, scared away from the start by tuition and unaware of the available discounts." The solution to which is, of course, clueing them in to the system and the opportunity to benefit from it. (Like the first time an older relative explained to you that nobody actually pays the listed price at a used-car dealership.)

The article did quote someone raising the familiar spectre of a "squeeze of the middle class": upper-income families can pay full sticker price while poor families get lots of aid. No actual data was offered to back that up, and since the article notes that aid is offered to families earning as much as $150,000/year if they have several kids, the worry seems to depend on a rather expansive definition of "middle class". Or for that matter of "squeeze."

Other than sardonic amusement at the discomfort of certain parties with discovering that they must deal with (horrors!) market dynamics like supply and demand, I'm fine with all this. Access to the finest system of higher education on the planet is being priced in a highly progressive manner? Works for me.

Overhead: let's make it plain

One of the interesting sessions at the recent Grantmakers in the Arts conference, of direct relevance to folks working in all non-profits, was led by Elizabeth Keating of the Kennedy School at Harvard. She argues persuasively that the ways funders and grantees interact regarding overhead expenses is irrational for all concerned, and that more transparency would enable mutual improvement.

[All which follows is my version of Keating's ideas, any transmission errors are mine.]

If you're a program manager or artistic director who's ever had to debate with your own finance staffer about which grant can pay for which costs, she means you. Or perhaps, as in my case, you've been that grants administrator! For several years at a large complex organization in the 90s I was that spreadsheet geek trying to rationalize a dozen grants with differing rules and reporting requirements, and I'm sure our hard-working program staff didn't enjoy the process any more than I did. (If Laurel, Dave, Steve, Michael or Diane read this they will right now be either laughing or wincing.) Of course now I'm on the funder side of the conversation, to which role I bring direct knowledge of how the bodies get buried so to speak...

Which is not to say that I think the process was entirely time wasted -- actually it forced us as a staff team to deal with important decisions including programmatic choices. But it sure was awkward and messy and arbitrary, and some of the incentives were perverse: the honest answer to a funder's question "What are the overhead costs?" would be "It depends, what are your overhead rules?" Yecch. Many perfectly well-intentioned staff teams have had that experience, and many funders have felt misled.

That last is actually what Keating means by her slightly-unfortunate presentation title "Is There Enough Overhead in This Grant?" She's not particularly arguing that funders should be magically made to only issue unrestricted grants. (Which is good cause they ain't about to, and there are good reasons why not.) Rather she argues that the core of the problem is that there is no consistent definition of "overhead" in detail or even in principle, and that the two parties in the funder-fundee relationship aren't honest enough with each other about the subject.

Keating proposes that non-profits adopt the sort of transparency that is standard for corporations about their finances, and she's working on some promising tools (software, and report formats) for that. She proposes mandatory non-profit openness on this subject once they get big enough to accept project grants: "Once a non-profit has to figure out an overhead allocation for any one grant, they must make that data public as part of financial reporting or annual audits." In return, foundations would agree (locally or nationally) to standard definitions of what is overhead and how much of it is reasonable. We could as a sector have sensible conversation about how much is or is not too much, and have no more jerry-rigged 90-page spreadsheets which arbitrarily assign the copier lease to this grant and the office assistant's salary to that one. Works for me, and the sooner the better.

Nobody minding the store

No doubt there have been failures of non-profit management as egregious as what's been going on at the Milwaukee Public Museum, but none come readily to mind. The place was running huge operating deficits for several years and the chief financial officer papered it over by taking money out of the endowment, apparently without telling the board or the CEO. In only a couple of years the endowment was basically drained (it wasn't big to start with) with the place still tens of millions of dollars in debt.

Now the finance chief has been charged by the state's attorney with severe malfeasance (there's no allegation that he kept any of the money himself); he's looking at jail time. The board and CEO shouldn't be let off the hook though, they seem to have been basically uninterested in oversight of the museum's finances. Nobody over there has done the sector proud, for sure.