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The New Nonprofit Almanac and Desk Reference is a completely revised version of the INDEPENDENT SECTOR'S landmark publication. This accessible, user-friendly new edition of The Almanac produced jointly by INDEPENDENT SECTOR and the National Center for Charitable Statistics at the Urban Institute, provides key data, high-quality information, and insightful trend analysis about the nonprofit sector as a whole. This comprehensive volume defines the size and scope of the independent sector and compares it with the business and government sectors.
The Almanac includes vital information about the number of organizations in the sector, the income originating from the independent sector, and the value of volunteers. It also analyzes statistical information about the number of people employed, their share of total wages and salaries, and general employment trends in the independent sector. This must-have reference includes an overview of the total private contributions from individuals, foundations, and corporations and offers analyses of current giving trends and the effect of tax laws. It estimates the income derived from three major sources— private giving, government payments and private payments— and includes information on how the funding is distributed.
The Almanac contains detailed financial information on reporting organizations and public charities as processed and analyzed by the National Center for Charitable Statistics at the Urban Institute from the newly created GuideStar/NCCS Nonprofit Database.This latest edition-which is the sixth in the series-provides chapter summaries with quick, fingertip facts and includes useful references to other nonprofit websites and government data sources.
THE INDEPENDENT SECTOR, which constitutes the largest share of the nonprofit (or "voluntary") sector, has been described as diverse, disparate, and a challenge to define. Similar to the associations referred to by Alexis de Tocqueville 165 years ago, the institutions that make up the sector are of "a thousand other kinds-religious, moral, serious, futile, very general or restricted, enormous or diminutive" (Tocqueville, 1999 , p. 106). Among the many, varied organizations that make up the independent sector are religious organizations, private colleges and schools, foundations, hospitals, day-care centers, environmental organizations, museums, symphony orchestras, youth organizations, advocacy groups, and neighborhood organizations, to name a few. What is common among them all is their mission to serve a public purpose, their voluntary and self-governing nature, and their exclusion from being able to distribute profits to stockholders (Boris and Steuerle, 1998, p. 3).
This chapter provides an overview of the independent sector in the context of the U.S. economy. Specifically, it examines how many organizations belong to the independent sector; how much of the national income is generated by the sector; and how many people it employs andtheir share of the total wages and salaries in the economy. Trends are also provided to compare the size of the independent sector to that of the other major sectors of the national economy, namely, the business and government sectors.
In brief, the independent sector:
Includes two major groups of tax-exempt organizations: 501(c)(3) charitable organizations and 501(c)(4) social welfare organizations and all religious organizations and congregations.
Comprises 1.2 million organizations-or 1.6 million if all nonprofit organizations are included (see Table 1.1) Accounts for 4.4 percent of all identified institutions in the United States-or 5.9 percent if all nonprofit organizations are included (see Table 1.1)
Grew in number of organizations by 31 percent between 1987 and 1997, surpassing the growth rate of both the business and government sectors
Accounts for 6.1 percent of total national income
Employs 10.9 million paid employees and 5.8 million volunteers
Represents 7.1 percent of total paid employment
Covers nearly 5.4 percent of total actual earnings from work
Provides an important share of the goods and services consumed by the population
What Is the Independent Sector?
There are twenty-five different categories of tax-exempt organizations under the U.S. tax code (see Table 1.2), all of which receive exemption from federal income taxes and, at the discretion of local authorities, from property tax. Two major groups of tax-exempt organizations as defined under U.S. tax code constitute the independent sector: 501(c)(3) charitable organizations and 501(c)(4) social welfare organizations. However, 501(c)(3) charitable institutions are the only group of tax-exempt organizations that can receive tax-deductible contributions from individuals and corporations. They include organizations that serve religious, educational, charitable, scientific, and literary purposes. They also include organizations testing for the public safety, fostering certain national and international sports competitions, or working to prevent cruelty to children and animals, as well as private and corporate foundations. Charitable organizations are not allowed to distribute their excess revenue to individuals or other stakeholders as in business organizations. Charitable organizations are limited with regard to legislative lobbying. In general, 501(c)(3) and 501(c)(4) organizations serve a much wider variety of population groups than other categories of tax-exempt organizations that require their members to be of a particular status, profession, or occupation-such as professional societies, labor unions, or bar associations, among others.
The second group of organizations included in the independent sector -501(c)(4) social welfare organizations-likewise work for the public benefit. They have no restrictions on their lobbying activities to promote the public good. These organizations, composed mainly of civic and social welfare groups and local associations of employees, may lobby to promote community welfare and undertake charitable, educational, or recreational activities. (See Figure B.1 in Appendix B for a graphic representation of the components of the independent sector.)
Growth in the Number of Organizations Among the Major Sectors
Measuring the number of organizations in the independent sector is a complex activity, largely because of the diversity of its components. The IRS Business Master File of Tax-Exempt Organizations lists the number of organizations registered with the IRS. Excluded from this list, however, are many congregations, conventions, or associations with religious affiliations and numerous community organizations with less than $5,000 in gross revenue, which need not register with the IRS. Trends from available data nevertheless indicate that the independent sector grew significantly from 1977 to 1998 (see Figure 1.1).
Of the 27.7 million operating organizations in the United States in 1998, approximately 1.6 million were nonprofit organizations. Over 75 percent of all nonprofits, or 1.2 million organizations, belonged to the independent sector. (See Table 1.1.)
The IRS reported 733,790 charitable and religious [501(c)(3)] organizations and 139,533 social welfare [501(c)(4)] organizations in its 1998 Business Master File of Tax-Exempt Organizations. Other types of nonprofit organizations numbered about 400,000. (See Table 1.2.)
Churches, subordinate units, and conventions or associations of churches, although qualifying as 501(c)(3) entities, are not required to register with the IRS and are largely undercounted in this category. About 354,000 churches and analogous religious congregations, such as temples or mosques, can be identified. (See Table 1.3.)
The entire nonprofit sector made up 5.9 percent of all organizations in the country in 1998, whereas the independent sector represented 4.4 percent of all existing organizations. The business sector dominated, with 93.8 percent of all organizations, and the government sector comprised 0.3 percent of all organizations. (See Table 1.1.)
The number of independent sector organizations grew at an annual rate of 2.7 percent between 1987 and 1997, surpassing its growth rate in the previous decade (2.1 percent). This expansion was caused by the increase in the number of 501(c)(3) charitable organizations that were formed, which grew at an annual rate of 5.1 percent, or more than double the rate of the business sector. Figure 1.2 compares annual rates of change among major and selected sectors over three time periods.
Between 1987 and 1997 the number of organizations in the independent sector increased by 31 percent, growing from 907,000 to almost 1.2 million. This was largely accounted for by the 64 percent increase in the number of charitable 501(c)(3) organizations between 1987 and 1997. In comparison, the number of businesses grew by only 26 percent and government by 5 percent over the same time period. (See Figure 1.3.)
Share of National Income Among the Major Sectors
The U.S. Bureau of Economic Analysis defines national income as the "total net income earned in production." "It differs from gross domestic product [GDP] mainly in that it excludes depreciation charges and other allowances for business and institutional consumption of durable capital goods and indirect business taxes" (Council of Economic Advisers, 2000, p. 336). National income is about 80 percent of GDP. National income is largely made up of compensation of employees (70 percent); the rest includes proprietors' income, rental income, corporate profits, and net interest.
In estimating the share of national income for nonprofit and government organizations, only the compensation of employees and employer supplements to salaries (such as contributions for social insurance, pension plans, and health insurance) are included. Returns of capital are included only for the business (for-profit) sector.
In 1997 and 1998 total national income was $6.86 trillion and $7.27 trillion, respectively. This amount includes the assigned, or imputed, value for volunteer time and unpaid family workers. For 1997 and 1998 the independent sector's share of national income was 6.1 percent, and the total nonprofit sector's share was 6.7 percent. The business sector's share of national income, in comparison, increased from 79.7 percent in 1997 to 80.0 percent in 1998. The government sector's share decreased slightly from 13.6 to 13.3 percent for the same period. (See Table 1.4 and Figure 1.4.)
Modifying the national income account to include the assigned, or imputed, value of volunteer time underscores the significance that volunteer activity has on the independent sector and on American society. The value of volunteer time is calculated by taking the average hourly wage for nonagricultural workers and increasing it by 12 percent to estimate fringe benefits. In 1997 and 1998 the value of volunteer time accounted for approximately one-third of the independent sector's total national income (see Table 1.4).
In 1998 the assigned value for volunteer activities added another $225.9 billion to total national income (Saxon-Harrold and others, 1999). Figure 1.5 traces the dollar value of volunteer time from 1977 to 1998 in both current dollars and constant 1997 dollars. Using constant 1997 dollars to control for inflation, the dollar value of volunteer time has increased from $121.8 billion in 1977 to $221.8 billion in 1998, an increase of 82 percent.
Excluding the assigned value for volunteers, the annual percentage increase in national income for the independent sector from 1977 to 1997 was 3.8 percent, compared with 2.2 percent for business and 1.4 percent for government (see Table 1.5). Since 1992 the trend has altered, with the business sector surpassing the growth rate of the independent sector.
Employment in the Major Sectors
Included in the estimates for employment are all paid full-time or part-time employees, self-employed workers, and persons working without pay, including volunteers and family workers.
An estimated 153.6 million people worked in 1998, and 144.1 million of them (94.0 percent) received pay. Volunteers constitute 6.1 percent of all workers and numbered over 9.3 million in 1998. (See Table 1.6.)
The independent sector's share of total paid employment rose from 5.3 percent in 1977 to 7.1 percent in 1998. In actual number of employees, the figure nearly doubled, from 5.5 million in 1977 to 10.9 million in 1998 (see Figure 1.6).
In comparison, the number of paid employees in the business sector increased by 50 percent, from 66.3 million employees in 1977 to 100.0 million employees in 1998; the number of paid employees in the government sector increased by 20 percent, from 18.5 million to 22.2 million.
In 1998 one out of every twelve paid employees in the United States worked in the nonprofit sector.
In 1998 about 5.7 million individuals, or 62 percent of all volunteers, worked in the independent sector. The government sector benefited from the services of over 2.4 million volunteers, or 26 percent of total volunteer employment; half a million individuals volunteered for the business sector. (See Figure 1.7.)
Volunteers represented 35 percent of total employment in the independent sector in 1998. When their numbers are combined with paid employment, the independent sector's share of total national employment increases from 7.1 percent to 10.8 percent.
Earnings from Work in the Major Sectors
In 1998 Americans' actual earnings from paid work (wages and salaries and self-employment income, excluding fringe benefits) reached $4.8 trillion. About 5.9 percent of total actual earnings originated from the nonprofit sector. Businesses accounted for 79.7 percent of actual earnings, and 14.4 percent was generated by the government sector. (See Figure 1.8.)
When the total value of volunteer employment and unpaid family work is added into the equation, total earnings from work increases by $206 billion, reaching $5 trillion. In essence, volunteer employment contributed over $200 billion in unpaid human resources to the economy. (See Table 1.7.)
In 1998 the assigned value of volunteer labor in the independent sector alone reached nearly $125 billion, or about one-third of total earnings in the sector. This ratio was slightly higher for other nonprofits, for which it represented 36 percent of total earnings. (See Table 1.7.)
Relationship Between Expenditures of the Independent Sector and the American Population
A quantitative indicator of the independent sector's contribution to improving quality of life can be conceived as the relationship between its total current operating expenditures and the total American population. Data on current operating expenditures are not available solely for the independent sector but refer to all private nonprofit organizations. However, approximately 90 percent of both employment and earnings from work in all private nonprofit organizations can be attributed to the independent sector.
In 1999 current operating expenditures for all nonprofit organizations were estimated at $784.6 billion. Over a forty-year period, in constant 1996 dollars, these expenditures increased from $172.2 billion in 1959 to $723.4 billion in 1999. (See Table 1.8.)
Again using constant 1996 dollars, the amount expended by non-profit organizations for every man, woman, and child in the United States rose from $972 in 1959 to $1,595 in 1979, reaching $2,649 by 1999 (see Figure 1.9).
Independent Sector's Share of Total Services and Personal Consumption
Personal consumption expenditures refers to the total amount of goods (durable and nondurable) and services purchased by the resident population of the United States. Although most of the goods and services purchased by individuals are from businesses, goods and services may also originate from the government, from overseas, or from nonprofit institutions.
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|List of Tables|
|List of Figures|
|Overview and Executive Summary: The State of the Independent Sector|
|Pt. 1||The Size of the Independent Sector||1|
|1||Defining the Independent Sector and Its Place in the National Economy||3|
|2||Employment Trends in the Independent Sector||30|
|3||Trends in Private Giving||52|
|4||The Financial Trends and Condition of the Independent Sector||90|
|Pt. 2||A Detailed Look at Reporting Public Charities||119|
|5||The Distribution and Finances of Public Charities||123|
|A||National Taxonomy of Exempt Entities - Core Codes (NTEE-CC) for the Nonprofit Sector||201|
|C||Key Data Sources and Web Sites on the Nonprofit Sector||227|
|D: Glossary of Terms||233|