Lucy Bernholz at Philanthropy 2173 offers a modest proposal to address a vexing question. The question is this: Are there too many nonprofits? Her proposal is this: Let’s let crowdsourcing help us decide. To frame the proposal, she reframes the question this way:
Do we have the right number of nonprofits to provide and distribute
the social, environmental and public goods we need to those who need
them?
I’ve heard many claiming we definitely have too many, pointing to the rapid and on-going expansion in the number of nonprofits over the past decades, and to evidence that the resources needed to support them are stretching ever thinner. But I’ve also heard the practical side of the argument, saying essentially ”so what?” There’s a market for nonprofits much like the market for commercial enterprise (although it’s a bit more sluggish and duct-taped with a dedicated workforce). Those nonprofits that can’t attract sufficient revenue, volunteers, or contributed income will fall and those that can will rise.
Bernholz suggests we might avoid the euthanasia question (explored in a previous post) by focusing on the pipes that lead into the system. Perhaps we should reconsider the way nonprofit applications are approved in the first place (currently the sole job of the IRS). Says she:
If we presume, for the sake of argument, that we need nonprofits to
produce and distribute public goods that are not adequately provided by
markets or government, shouldn’t the public have some say in how we
allocate this tax privileged organizational status? Right now, the tax exempt status that 501c3 approval designates is
decided by professionals within the IRS. They rule on regulatory fit,
not community need. There has not been, to-date, a viable way for these
professionals to consider community need.
Hence the proposal: perhaps there should be community input in the application and approval process for nonprofits. And perhaps we could explore the model already under construction at the US Patent Office. Peer to patent opens the patent review process to the world, giving patent examiners a thousand eyes to inform their approval process, and giving the public a chance to weigh in on allocation of a public resource (for patents, that public resource is the temporary monopoly on use of the invention; for nonprofits, the public resource is the fiscal priviledge and tax exemption provided to the enterprise).
Should nonprofit status be a function of impact and need rather than merely regulatory fit? And if it should be, how do we operationalize that decision in practial policy? More difficult yet, could YOUR nonprofit justify its tax exemption and public benefit under such competitive and community review?
While there may be some value in requiring community support before an organization can achieve non-profit status I also fear doing so could reduce innovation among non-profits. If you have to have community support before you start it would be very hard to create a non-profit that fills a need the community has but doesn’t realize yet. Maybe that’s not a big deal since to maintain its existence such an organization would have to convince its community of its value pretty quickly. But still worth thinking about.
While the mechanism of informing the deciding body is similar to peer to patent, the intent seems opposite. Peer to patent intended largely to prevent suppression of competitive upstarts by preventing patents that shouldn’t be approved (because they are not really inventions or are not new).
Applying similar info gathering to a deciding body for NP approvals says “let’s gather information to inform decisions because we feel a need to protect oldNPs from newNPs”. This looks like a readily gamed mechanism slanted toward encumbent organizations.
Am I missing the point?
What about the fact that a significant number of people see the arts as a luxury that should have NO public support? The idea of “public input” might have some merit in the social services sector – I don’t know. But I don’t see any reason that someone who believes in, say, dismantling the NEA or the NEH, or the yahoos who have weighed in on the UC system’s tuition hikes (saying, eg, that those who are going into medicine or engineering should go for free, while those who are in the arts or humanities should pay full tuition) should have any say in whether a chamber orchestra can get 501c3 status.
Its just seems like additional red tape to me. The community ultimately ends up supporting the nonprofit. If the need or desire is not there, the organization will not survive. In general smaller/new organizations tend to be much more nimble than the old guard and are the first to push the envelope in new ways to reach constituents, or raise funds. Driving the entire sector forward. As well as fill in the gaps that larger organizations don’t always fill.
The main problem with crowd sourcing it is that most of the crowd has no real idea what the needs are. If I was to tell someone that there are 14,000 people with Lupus in my area,or 7,000 with Multiple Sclerosis, they would be astounded. As soon as they got over the shock they would say – There are organizations here to help them, and they would be right to an extent. Even with these national organizations there are still people who need assistance, and the crowd as a whole haven’t noticed the need.
Whether or not a million and a half charitable organizations in the US are too many is hardly a question worth pondering. Are there too many fish in the sea or stars in the sky? Of course not—the number is the number. Stars grow dim, flame out and others come along with new vibrancy. The more important question is how can these organizations be better at operating as self organizing systems (developing natural collaborative processes and not rigid hierarchical structures); adapting to their ever-changing environment (allying with the most unobvious partner, merging with others who hold similar values); all while becoming more purposeful in their pursuits (where vision replaces survival, and outcomes supplant programs as their raison d’etre). Enterprises that do these things well will flourish and shimmer. Let’s help them with all three instead of blocking their creation or worse still, trying to find ways of deciding which ones live or die. The world is in bad enough shape without us penalizing those very people who want to organize with others for the sole purpose of making a better world. Let’s help them help make things better.
When I interviewed you last year for my article about sudden leadership transitions in arts orgs, you made a great point which I think is pretty applicable here.
”Sometimes, in the arts world, we think it’s our job to survive no matter what,” said Taylor. ”But there’s nothing wrong with being a temporary organization. Sometimes it’s best to release the energy, so you can reorganize it and use it in other ways.”
Leadership transitions provide a good opportunity to reassess an organization’s priorities. Perhaps funding renewals, like you’ve described above, are another time to do so.
It’s kind of a shame that there aren’t many other truly obvious points where groups can say, ”Okay, would we be better off doing something else?” But who wants to be the one to say it?
As always, thank you for the conversation. When my music festival started, no one knew me or anyone else that I worked with. I was able to convince a law firm in town to create the nonprofit as a pro bono action, which was just luck. We’ve had great use from the nonprofit status and good moderate success over many years – and certainly a community vetting of our festival would have done no good way back when because, as Maureen says, my home town didn’t know what they were missing!
It’s so much trouble to go through the process of becoming a nonprofit that that in itself must tend to hold the numbers to the most tenacious and determined organizations.
I think the most encouraging thing I’ve heard about regarding this matter is the organizations that are serving as an umbrella to help arts ventures get on their feet. Perhaps if we could build up the strength, street knowledge and availability of such fiscal sponsors, arts ventures would know where to turn and how to get help before beginning the long and arduous process of becoming nonprofit.
It’s a really difficult question. I am most familiar with the arts nonprofit and not health or social service, but I am forced to admit that more-more-more isn’t always a good thing. In the nineties, my community built a 2,000-seat performing arts center, an 8,000 seat arena and renovated a 1,000 seat downtown theater. Similar efforts were happening in communities very close to us. The result was by 2,000, we had enough programming that every man, woman and child in a 90 mile radius would have to go to the theater 10 times a year to support the programming these groups were doing. It’s one thing to say that the community will weed out unwanted nonprofits, but there are two things wrong with that. The first is that the board and volunteers of a nonprofit usually believe in the mission so much that they will keep it going against all reality. The second is that nonprofits are supposed to serve a different marketplace, one where donations and grants shield the organization against at least part of the free marketplace so that the mission will be served. In my community, only one major arts nonprofit has folded, and that was more about the founder retiring than anything else. Others are limping along, accumulating deficits, cutting programming, working harder…anything to maintain the illusion that everything is all right. I don’t know the answer, but it’s really worth discussing.
Hi everyone
Great comments – thanks for the post and for the many great ideas and questions. All of this input has helped me think this kernel of an idea through a bit further. Let me try this – my interest is in the lack of community needs assessment or input into the 501 c 3 application process. Right now, the IRS checks for regulatory fit, there is no way for them to know (and no way for the IRS to officially care if they did know) if the organization being proposed is the 99th version of X kind of organization in a population of 98 people. (extreme example on purpose) So what if there were mechanisms that could provide a sense of the community’s needs, interests, support as part of the application process. The public support test only matters once the organization is up and running.
Now, I agree, there are challenges to this – it needn’t be a popularity contest and since one of the purposes of the independent sector is to provide an outlet for ideas that may be held by a minority of people, it can’t be a matter of voting in the next most popular organization. But surely there is a better way that would include some sense of ongoing support, interest, competition at the front end, not just later….?
Lucy
Seems to me that the community support test is already passed when enough members of a given community gather and spend time and put money forth to create a not for profit organization. I’m having a hard time imagining an appropriate, balanced, agenda-free public entity having the ability to allow an nfp to create itself or not before applying for 501 c 3 ness with our friends at the IRS. As it would be difficult to imagine such a public entity having the power to allow a business of any kind to form itself. The market will ultimately decide if the nfp is viable and meaningful.
Professor Rosewall is certainly correct in recognizing that board members and staff of struggling nfps often have their blinders firmly in place, especially when times are tough….making it more important than ever that board members do their homework about the organization, their community and its needs and measure the nfps’ reason for being against those economic and political realities.
I believe that too many performing arts centers have been built in this country, and resident companies (locally produced art) suffers because of this over saturation.
There are also too many nonprofit arts presenters that are nothing more than distribution channels for commercial Broadway productions? I think the trickle-down impact for otherwise starving artists is a good thing, but some individuals have built small fortunes in the process.
An interesting conversation (both here and on Lucy’s blog), but I’d have to say that on balance it just pushes me even more into the let-the-best-emerge-from-the-fray camp. What’s most needed in our sector is the analytic tools and information and transparency. We most need to figure out how to measure our results so we (and our supporters/investors) can make the kind of decisions which make market dynamics work for the common good.
Meanwhile the notion of any monopoly party public or private (in this case the IRS) enforcing subjective judgments of things like “social need” gives me the willies. And the peer-review concept gets uncomfortably close to how the academic world awards tenure, a god-awful process which goes a long way towards explaining how academia became what it is today. Nooooo thank you, this sector has the potential to be a whole lot more useful to the world than that.
A very interesting discussion. Of course there is always excess during a boom, but I keep thinking of the Lotus World Music Festival in my former home of Bloomington, In. No one would have said upon its founding in 1994 that what this town really needs is a world music festival! But now Lotus has become one of the area’s signature events — some even say the reason to live in Bloomington, as its various spinoffs have meant a lively world music scene year-round, in addition to an amazing festival week.
And no one needed or wanted it, just the founders. The incubator idea makes some sense, but my guess is that poorly run new nonprofits don’t make it very far.
The real concern here is the ossified, older nonprofits who have long ceased to matter but whose endowments and “automatic” gifts from long time donors keep it going regardless. But there aren’t all that many of those.
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Alena
http://grantfoundation.net